Combination Long-Term Care/Life Insurance Policies: Understanding, Advantages, and Considerations

When people think about retirement, they often think about long-term care and life insurance, but combining long-term care with the dual coverage of life insurance may be a better solution. As you get older, life insurance gets expensive. Long-term care insurance is expensive too. Purchasing both policies separately can be unfeasible for many people. That’s where a combination long-term care/life insurance policy comes into play. These products combine long-term care insurance and permanent life insurance to offer comprehensive coverage and peace of mind. In this article, we will explore how dual coverage policies work, their advantages and downsides, and why they are gaining popularity among consumers.

Understanding Combination Long-Term Care/Life Insurance Policies

Dual coverage policies provide long-term care coverage and death benefits. The long-term care aspect of dual coverage includes services like nursing home care, assisted living, and home health care that are not typically covered by regular health insurance or Medicare. If the policyholder dies before fully using the long-term care benefits, the beneficiary will receive a death benefit payment.

There are many options for dual coverage, but help is available to determine the best fit for your goals. Let’s look at a few examples. To get a combined policy, you can opt to pay a lump-sum premium or a set number of annual premiums, usually spanning less than ten years. The long-term funds available depend on several factors.

The Coverage Approach

There are two ways to consider the level of benefits for the long-term care portion of dual coverage policies. Firstly, you can request a policy that covers a specific amount, either as a monthly or daily benefit, such as $200 per day or $6,000 per month. Secondly, you can choose a benefit that pays for a predetermined number of years or a lifetime benefit. Keep in mind that the more benefits you choose to cover, the higher the cost will be.

The Spend Approach

Another way to approach long-term care coverage is to state how much you want to spend and the insurance company will tell you how much coverage that amount will buy. For example, you may say, that you only want to spend $200 per month. The insurance company will calculate how much benefit that amount will buy based on your age, health, and level of benefits requested.

The Life Insurance First Approach

Or you can start with a desired level of life insurance and determine the long-term care benefit that coincides with that benefit. For example, you could request a $500,000 life insurance policy and determine the long-term care benefit that coincides with that benefit.

Guidance Can Help

A knowledgeable agent can help determine which policy options and benefits fit your budget. If you live in Texas and need assistance, Richards Financial Planning offers a free consultation to help determine the best options for you.

In both instances, the insurance company considers your health, age, and gender in determining your cost. This type of dual coverage policy is sometimes referred to as a hybrid life/long-term care policy. It is based on a fully-funded cash-value life insurance policy that provides annuity-like benefits with long-term care coverage.

Another type of dual coverage policy will begin with a life insurance policy with a long-term care rider. Usually, these policies have lifetime payments because they are based on a universal or whole life insurance policy.

Advantages of Dual Coverage

Combination long-term care/life insurance policies offer several advantages that make them an attractive option for individuals seeking comprehensive coverage:

1. Dual Coverage and Financial Protection

With a combination policy, individuals can enjoy the benefits of both long-term care insurance and life insurance. It offers a comprehensive solution that addresses both immediate and future needs.

2. Hybrid Policies Have No Premium Hikes and a Premium Guarantee

By opting for a lump-sum premium payment or a limited number of premium payments, policyholders can avoid the risk of premium hikes. Traditional long-term care insurance policies have experienced significant premium increases in recent years due to rising care costs. With a combination policy, individuals can lock in their premiums, providing stability and predictability in their financial planning.

3. Money-Back Guarantee

Some combination policies offer a money-back guarantee, providing policyholders with flexibility and peace of mind. If they decide they no longer want the policy after a specific period, such as five years, the insurance company will return their premium in full. Or, policyholders may be eligible for an early partial premium refund, providing protection against unforeseen changes.

4. Permanent Life Insurance with Long-term Care Rider

The long-term care rider option starts with life insurance and couples it with a policy option called a rider. The rider is like a contractual amendment that will pay long-term care benefits in conjunction with the death benefit. This type of permanent life insurance/long-term care combination gives people a less expensive way to have a dual coverage policy. However, there may be fewer guarantees because universal life insurance has some non-guaranteed aspects. Plus the long-term care rider can have limitations too. With that said, some people still may prefer this type of coverage because of the lower cost.

Considerations and Downsides of Dual Coverage

While combination long-term care/life insurance policies offer significant benefits, they may not be suitable for everyone. It is essential to consider the following factors before deciding to purchase a combination policy:

1. Need for Life Insurance Only

If an individual’s primary concern is life insurance coverage and they do not require long-term care insurance, a traditional term or permanent life insurance policy may be more suitable. Term life insurance provides coverage for a specified period, typically the years when the family relies on the policyholder’s income, while permanent life insurance offers lifelong coverage.

2. Preference for Temporary Coverage

For individuals who only need temporary coverage, such as during a specific life stage or financial obligation, opting for term life insurance can be more cost-effective. Term life insurance policies generally have lower premiums compared to combination policies, making them an attractive option for those who do not require long-term care coverage. If you only need life insurance, you can request a quote here:

3. Financial Considerations

Hybrid policies can be expensive, requiring an upfront investment that some people can’t afford. However, if you’re looking for long-term care insurance, you might want to consider a life insurance policy with a long-term care rider. Many people make the mistake of viewing policies from an all-or-nothing perspective. For instance, let’s say you come across a dual coverage policy that provides a $5,000 monthly long-term care benefit, but the policy is more than you can afford.

If you stop there, you’re not seeing the full picture. Sometimes, it’s better to opt for a long-term care policy that costs less than the total anticipated long-term care cost. In other words, some coverage is better than none. If you eventually need long-term care, there are options to choose from, such as in-home care, which is typically less expensive than a full-service care facility. It’s important to evaluate your personal financial circumstances and determine whether the investment aligns with your long-term goals and priorities.

Rising Popularity of Combination Long-Term Care

Interest in combination long-term care/life insurance policies has been steadily increasing in recent years. According to LIMRA, more than one-fourth of Americans expressed a strong likelihood of considering a combination policy when shopping for life insurance, up from 17% in 2019 ^{(LIMRA, 2021)}. LIMRA, short for Life Insurance Marketing and Research Association, is a globally recognized research and consulting organization within the insurance and financial services industry. The LIMRA study found that 35% of Millennials are highly likely to consider dual coverage products, compared to only 17% of Baby Boomers. This growing popularity can be attributed to the comprehensive coverage and unique benefits that combination policies offer. According to LIMRA here are the top five reasons people give for considering a combination life insurance product:

1. Concern that LTC costs may deplete or exceed my savings – 35%
2. It is a more economical use of my current assets – 33%
3. Benefits will be paid even if I don’t incur LTC expenses – 29%
4. LTC insurance (on its own) is too expensive – 26%
5. I can’t afford two separate (life and LTC) policies – 25%

^{(LIMRA, 2021)}

In conclusion, a combination long-term care/life insurance policies provides individuals with a way to address both their long-term care needs and life insurance coverage in a single product. These policies offer the advantages of dual coverage, premium stability, and the potential for a money-back guarantee. However, it is essential to consider personal circumstances and financial capabilities before deciding to purchase a combination policy. Consulting with a financial advisor who specializes in these products can provide valuable insights and help individuals make informed decisions about their insurance needs.

If you live in Texas and want to learn more, schedule a brief no-cost conversation with a financial advisor here:

The Need for Personalized Financial Advice

In making decisions about insurance coverage, it’s crucial to remember that individual circumstances vary widely. While this article provides valuable insights, it’s important to seek personalized advice from a qualified financial advisor. They can take into account your specific financial situation, goals, and needs to offer tailored recommendations. This article only serves as a general guide, but professional advice is essential to ensure that any insurance decisions align with your unique circumstances and long-term financial objectives.

References

LIMRA. (2021, May 19). Interest in life combination products shifts. https://www.limra.com/en/newsroom/industry-trends/2021/interest-in-life-combination-products-shifts/