Since Penn Treaty long-term care insurance went out of business, leaving Penn’s business partners holding the bag for some costs of claims and making seniors worried about their futures, people are even more hesitant to buy long-term care insurance than before. Historically, the high cost of long-term care insurance premiums has kept many people from buying this coverage. It now appears that after paying the high premiums for years, long-term care insurance might not be there when you need it.
There are relatively new alternatives to long-term care insurance. If you are exploring hybrid long-term care options, you may have questions about what they are and how they work. Kiplinger advises these options come in many forms.
Long-Term Care Rider Coupled with Whole or Universal Life Insurance Policy
With this variation, you pay one up-front premium or a series of premiums with set prices. There are no future premium increases. While the number of these hybrid insurance products sold in 2015 was up by 37 percent over 2014, sales of traditional long-term care policies fell about 20 percent during the same time. If you never need long-term care, you will still get a financial benefit from the hybrid policy through the death benefit. Standard long-term care insurance can only pay nursing home expenses. Therefore, if you do not use it, you lose it.
Growth Rate of Cash Value
Many hybrid products also grow in cash value. The current growth rate is about 2 percent, which is good compared to today’s bank rates. However, if short term returns increase considerably, you will lose out on the potential return you could get in the market for your money. You must invest at least $50,000 to $75,000, if you want coverage that will provide sufficient long-term care benefits. Taking a distribution from the annuity or life insurance to pay for nursing home costs can be tax-free sometimes, which is likely better than paying for a nursing home with your after-tax savings.
The New York Times reports that hybrid products can be an essential component of your wealth-management plan, to prevent long-term costs from depleting your life savings, while providing flexibility. Some combinations include long-term care coverage with an annuity, instead of a universal life policy. Some hybrid packages provide fixed income through annuities, cover nursing home costs out of cash retained in the product and pay a death benefit through life insurance components.
Best Candidates for Hybrid Long-Term Care Products
Experts warn these hybrid financial products are not the best option for everyone. If you have less than $500,000 in assets, you may prefer to spend down your assets over time to qualify for Medicaid to pay your long-term care expenses. If you have more than $2 million in assets, you can pay nursing home expenses out of pocket. Between $500,000 and $2 million in assets is the sweet spot, at which buying a hybrid long-term care product might make sense. Talk with your financial advisor about what is best for your situation.
This posting discusses general law. Talk with an elder law attorney in your area to learn the laws in your state. Also consult a financial advisor and a tax expert.
Kiplinger. “Hybrid Insurance Policies Gaining Steam.” (accessed October 8, 2017) http://www.kiplinger.com/article/insurance/T036-C000-S004-hybrid-policies-gaining-steam.html
New York Times. “Hybrid Long-Term Care Policies Provide Cash and Leave Some Behind.” https://www.nytimes.com/2016/03/06/business/retirementspecial/hybrid-long-term-care-policies-provide-cash-and-leave-some-behind.html
Forbes. “Hybrid Long-Term Care Insurance Policies.” (accessed October 8, 2017) https://www.forbes.com/sites/wadepfau/2016/01/21/hybrid-long-term-care-insurance-policies/#33e4fe8a6bea
Penn Treaty. “Liquidation FAQs.” (accessed October 8, 2017) http://www.penntreaty.com/Liquidation/LiquidationQuestions.aspx
Elder Law Answers. “Long-Term Care Hybrid Products Give Buyers More Options.” (accessed October 8, 2017) https://www.elderlawanswers.com/long-term-care-hybrid-products-give-buyers-more-options-7812