Hybrid Long Term Care Insurance Policies with Life Benefits

If you’re investigating Long Term Care Insurance, you’ll want to look at policies with single premium payments, where you purchase a policy and have it completely paid off in one fell swoop.  With rate increases in the news, it’s natural to question whether there may be rate-increase-proof options to reduce the risk of paying more for your coverage in the future.  The short version: there are options, but they come with a cost that probably outweighs the risk of rate increases.

Insurers have embraced the idea of offering Long Term Care coverage with a single premium payment, and many products have hit the market in the last few years.  Companies from Lincoln to Pacific Life are big players here, offering Long Term Care benefits as part of a larger life insurance policy.  Immediately, the fact that this is also life insurance is going to turn many clients away from considering these policies.  If you don’t want life insurance, there’s no need to pay for it.

Example Quote for a Hybrid Long Term Care Insurance Policy

Let’s take a healthy 61-year-old female and consider “traditional” Long Term Care Insurance quotes vs. a Hybrid Life Insurance / Long Term Care policy from one of the A+ rated insurers that offers these types of plans.  This particular client would pay $1,221/year for traditional LTC benefits[1] of $164,250.  The same client would have to make a single premium payment of $100,000 to purchase a hybrid policy with similar benefits of $169,715.  Here’s a table of the benefits schedule:

This table continues, but the trend is clear.  Long Term Care benefits (in the last column) grow while the death benefit shrinks with age.  Considering you are more likely to die the older you are, this may seem counterintuitive, but keep in mind the reason you purchase these policies is to protect against Long Term Care.  The Life Insurance benefit is almost like a bonus, or hedge in case you never used your LTC coverage.

[1] This plan would be a 3 year, $150/day benefit with 3% compound inflation protection.

Can I Pay For a Hybrid Long Term Care Policy From My IRA?

It may be possible to pay for a hybrid policy from your retirement account (IRA), but doing so may also open up your Long Term Care benefit payments to taxability.  As with any complex tax issue, consult with a CPA before making any decisions about moving money into or out of one of the hybrid LTC plans.  The IRS has a few resources on the topic here and here.

Comparing Life Insurance with Long Term Care Rider to Regular Long Term Care

Every situation is different, and premiums are based on your age, state, health, and martial status.  Consult with a qualified advisor (you can do it online, below) who can go out and search the market to compare your options when it comes to which Long Term Care policy to consider.  In the example above, a 61-year-old female would pay $100,000 one time, or $1,221/year for similar LTC benefits.  If the same client is able to earn at least a 1.2% return on her money, she may be better off keeping the money under her control, assuming she doesn’t want life insurance.  By age 91, her death benefit has decreased to just $123,000.  Had she earned a 5% return on her money, the investment would have grown to $308,000 – and her LTC policy would have been paid every year.  Remember, both policies have inflation protection:

example of inflation protection

Protection From Rate Increases

It’s true that a hybrid policy that combines Life insurance and Long Term Care helps insulate you from rate increases.  When the alternatives are considered, however, protection from rate increases comes at a massive opportunity cost.  Having your money working and compounding in the markets (money market, stock market, etc) may lead to benefits far beyond what is available with the much more conservative approach of buying a Life insurance hybrid product.  As with any Long Term Care decision, having a trusted advisor is the most critical element.  Avoid taking advice solely from your financial advisor, especially if they sell these products.  They may have their hands tied to one company only, leading to biased advice.  Above all, when considering Hybrid Long Term Care Insurance, remember the massive opportunity cost of your money being in the coffers of the insurer and not your investment account.

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