We probably already know that we require some type of life insurance to protect our family financially. What most of us may not know is how to compare all the different types of insurance policies. A lot of terms get thrown around, and it is quite hard to keep up.
There is a good chance that you might require long-term care as you age, but if you are like most Americans, you likely don’t have any type of insurance plan for this sort of care. Although about half of the adults that turn 65 will develop a disability that is serious enough to get assistance with their daily activities, very few people have long-term care insurance coverage to help pay the cost of care.
Whole life insurance with long-term care is slightly different from the typical life insurance plan. It is a relatively new product to help people with their long-term care needs. Over the past few years, it has been gaining popularity as the insurance industry adapts to the rising long-term care costs.
This product is designed to accomplish multiple things like giving long-term care benefits, provide a death benefit, and also provide living benefits. One of the most attractive features of whole life insurance with long-term care is that it is not a “use it or lose it” product.
What is the long-term care life insurance policy?
This is a hybrid policy that combines the benefits of life insurance coverage with long-term care. If you die, your policy pays a lump sum death benefit to your beneficiaries, but if you happen to develop a need for long term care, in this case, your policy will draw from your death benefit in order to pay for the things that regular health insurance or Medicare won’t cover.
Long-term care is a service provided when you need a nursing home, assisted living facility, or in-home care. If you don’t use the long-term care benefit before you die, then your beneficiaries will obviously receive the entire death benefit. Keep in mind that normally the insurers tack on long-term care to the permanent policies like whole life or universal life.
Whole life insurance with long term care
The combination of long-term care and whole life insurance policies pay for the long-term care that regular health insurance or Medicare would certainly not cover. As a policyholder, if you don’t max out the long-term care benefits, the insurer will pay the benefit to your beneficiary upon your death.
The combination of products works in the following ways.
Depending on the insurance policy, you can pay one lump-sum premium or a few large annual premiums, normally for fewer than ten years.
The policy offers a pot of money for long-term care, which is equal to several times your premium payments.
The death benefit of the policy gets reduced, and this means less money for your beneficiary, as it is according to how much of the long-term care benefit you use. There are some policies that guarantee a small percentage of the full death benefit, such as 10%, even if you are to use all the money that is allocated for long-term care.
You will be required to supply medical records and take a medical exam in order to qualify for these combination policies. There are others who offer simplified underwriting, which means that you may only need to answer health-related questions over the phone. You will pay less coverage if you are healthy because you are to buy a policy that requires both an exam and submission of medical records.
The combination of whole life and long-term care let you get something for your premium no matter what. This policy can be a good investment if you would have spent the money or would have kept it in a low-yield account. Some of the combination policies have a money-back guarantee, and the insurance company will return the premium if you decide that you don’t need the policy after a certain period of time, such as five years. Before that, you will be able to get a percentage of the premium back.
How can long-term insurance help?
Long-term care insurance can be used to pay for assistance when the life insurance policyholder is not able to perform the activities of daily living or has cognitive impairment. It covers the cost of care at home, adult day care, assisted living facilities, and skilled nursing facilities.
Most of the long-term care policies also cover modifications to your home in order to make it easier to remain there to receive care. The amount of coverage a policy provides depends on the benefit period and benefit amount that you choose. Depending on how long you need care and how much can it cost, long-term care insurance can help cover some or even all of the cost of care.
The insurance companies add life insurance to long-term care because of the risk. These companies basically want to protect themselves from paying someone for the rest of their life. This might be a good thing for you as a customer because it makes the policies more affordable.
People are living longer
People are living longer and longer, and the average life expectancy for the male is around 84 years, and female is 86 years. This trend is the main cause for more people to require help in their elder years with the activities of daily living. As the people live longer, this means that they are going to claim long-term care for a much longer period of time than they used to.
Increase in rates for traditional long-term care
Most insurance companies are struggling to help their clients with long-term care because of the increase in cost. For many years Genworth was a long-term care leader; however, they are having quite a few problems with their business model. However, Genworth is not the only one that has had to increase rates and cut costs.
Over the past decade, many companies have raised their rates. The increases in rates have caused the policies to be blended and are more attractive to the clients and the insurance companies. This way, the insurance companies are not on the hook of paying the benefits for an extended period.
How blended life insurance helps to solve the problem
The life insurance policies that also include a long-term care benefit alleviate the concern about paying for the coverage that you may never use. They can actually be used to pay for long-term care expenses and pay the death benefit when the person who is insured dies. This is the reason why these blended or hybrid policies have become more popular than traditional long-term care insurance.
One of the top reasons that people buy a combination of life products is to be economical with their resources, alleviate their anxiety over long-term care expenses, and also avoid the expenses of two policies. The amount of long-term coverage that you will get depends on the type of coverage that you buy. Your death benefit will obviously be impacted if you tap the policy to pay for long-term care.
What about Universal life insurance with long-term care?
The whole life insurance has solid guarantees, unlike universal life insurance products with long-term care. Whole life insurance has a cash value that can be accessed without having a high risk of lapsing the policy. Though you can still access the cash, you have to be very careful.
If you access the cash in the Universal life insurance policies with long-term care, the policy guarantee period tends to decrease dramatically, or the guarantees completely disappear. Some people don’t need cash, and if you don’t see yourself ever touching the cash value under any type of circumstance or emergency, then you can consider Universal life with long-term care.
Most people may require using long-term care benefits far in the future, so you would like to make sure that your policy has strong guarantees associated with it in multiple circumstances and scenarios. The main advantage that one can have with the Universal life insurance policies is that the premium will be cheaper, but one also has to be aware that they understand the features because cheaper is not always better.
Advantages and disadvantages of hybrid life insurance
In addition to paying a death benefit if long-term care is not required, there are other features that the hybrid products have that make them more attractive than the traditional long-term care insurance.
With the hybrid products, the premium is guaranteed and won’t increase over time. This appeals to the consumers because of the premium increases that are sometimes very high, and these were common with the traditional long-term care insurance policies in the past. Now the insurance companies are able to price long-term care policies in a more accurate way, so the rate increases are less likely.
These products offer flexible premium payment options. One can make one lump-sum payment or pay the premiums over time. The traditional long-term care policies normally don’t offer a single premium payment option.
It can be quite easy to qualify for the coverage because the underwriting can be less stringent with a hybrid policy as compared to the long-term traditional policy.
The whole life insurance with a long-term care policy might allow you to pay a family member who provides care for you. If it uses an indemnity model that pays cash rather than reimbursement for the actual cost of care, you may use that cash to pay a family caregiver. This is not an option for the traditional long-term care policies that pay the claims by reimbursement only.
The whole life insurance policy builds cash value, and you can tap this to cover expenses other than long-term care. It is worth noting that the stand-alone long-term care policies don’t have a cash value.
The biggest disadvantage of the hybrid product is that you don’t get the best coverage for your money. If your top concern is long-term care, then you will be able to get more coverage for your money with a stand-long long-term care policy. Therefore, it will be cheaper than the blended policy as you are not paying for the life insurance benefit.
The long-term care payouts can substantially reduce the cash value or the death benefit of a blended policy. If you have bought the policy because you have loved ones who will need death benefits, this benefit might not be there when they actually need it.
The hybrid policies don’t always include an inflation protection option, and this option increases the policy cost, but it allows the value of the policy to increase with the rising cost of long-term care.
The tax benefits regarding whole life insurance with long-term care may not be as generous. Both the hybrid and traditional long-term care insurance payouts are tax-free. But if you are self-employed, then you can deduct the cost of long-term care insurance premiums. With the blended policy, you are not able to deduct the full premium and only the portion that goes towards long-term care coverage.
Long-term care costs are not going down, and protecting yourself is quite essential for you. Whole life insurance with long-term care can be a good solution. If you do decide on such a combination policy, you should compare quotes from multiple insurers, and do the check the financial strength ratings of the insurance companies before you buy.
It only takes a few minutes to have a look at these companies on the websites of independent firm ratings like A.M. Best, Fitch Ratings, or Moody’s Investor Services. These rating agencies issue grades for the insurance companies, and every agency has its own scale.
There is no doubt that the combination policies are complex products, and their costs and benefits vary. Before you buy, it is better to talk to a financial advisor who understands all these products and can compare them to the stand-alone long-term care and life insurance options.
I’m Mitch Winstead with Advanced Mutual Group. Our website is http://www.advancedmutualgroup.com Our email is email@example.com Our Facebook page is http://www.facebook.com/advancedmutualgroup.com
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