One of the biggest mistakes people make in planning their health and life coverage is assuming they'll never need long-term care services, or that if they do need the services, they will pay for them with their savings.
And many people shy away from long-term care insurance because they worry about premium hikes or the fact that if they don't use the coverage, they never benefit from their premium payments. But now there is a policy that melds long-term care insurance with life insurance.
Here's how these hybrid policies work:
A person pays a lump sum premium for a universal life insurance policy, which builds up a tax-deferred cash value, in addition to providing life insurance that will pay a death benefit to their named beneficiaries.
If the policy holder needs long-term care services, he/she can use this death benefit to help pay for the cost.
Depending on the terms of the coverage, a $500,000 life insurance policy might pay from $200,000 to 500,000 toward the cost of nursing home care, in home care, and/or assisted living expenses.
The amount used to pay for long-term care expenses is deducted from the death benefit, and any part of the death benefit that is not used to pay for such costs is paid to the policy holder's beneficiaries as life insurance proceeds.
One type of coverage bundles a long-term care insurance policy with a whole life insurance policy. This strategy may be done with a single upfront premium, a set of premiums for a fixed term, or ongoing premiums.
The cash value is invested and liquid after surrender charges, and the policies generally will provide a fixed interest rate for cash value growth.
These hybrid policies try to eliminate some of the friction points of long-term care insurance, such as:
- Premium hikes,
- Limited-benefit periods,
- Worries that you may be rejected during the underwriting process, and
- The fact that if you never use your long-term care coverage, you see no return on your premium.
One can avoid premium increases by paying a one-time premium or a guaranteed schedule of premiums for a specific period.
Some policies lock costs in at the start, and a person can sometimes get an optional continuation of benefit rider that would continue paying for long-term care benefits even if the death benefit is depleted.
Is it good for your situation?
A blended life insurance/long-term care policy costs more, but there are potential advantages that may make this additional cost worth it for a person's situation.
For example, a person has some earmarked, guaranteed funds to help pay for any needed long-term care services. If he/she doesn't need long-term care services drawn from the policy, his/her beneficiaries receive the unreduced death benefit.
In addition, universal policies typically charge a premium that is guaranteed to at least maintain the basic benefit, although it may not be enough to build cash value. That eliminates the problem of rising rates on long-term care insurance that prompt many people to shy away from buying this type of coverage.
If a consumer decides to buy a blended life insurance/long-term care insurance policy, they need to be sure that they understand the long-term care benefits it would provide. Questions one may want to ask include:
- Exactly what type of long-term care services would the policy pay for; in-home care? Assisted Living? Adult Day Care? Nursing Home Care?
- How does the policy determine the amount of long-term care benefits it would pay? For example: does the policy pay a percent of the total death benefit, or does it pay a percentage of the death benefit monthly?
- Can inflation protection coverage be added?
- Are there any conditions under which premiums could increase?
- Is the policy tax-qualified, so that long-term care benefits won't be taxed as income?
Every person's needs vary, but if this type of dual long-term care and life insurance coverage suits a consumer's needs he/she is able to buy two types of insurance protection in a single policy and with a single premium.
Consumers who would like help from a professional who can guide them, should contact WFGInsuranceQuotes.com. They can assist individuals, families, businesses and organizations with a personalized strategy . Connect directly with a financial professional. and request a free consultation to discuss needs and goals.
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