“If you can't afford traditional long-term-care insurance, a new strategy that combines life insurance with long-term-care benefits may be more practical.”
Many individuals who’ve been unsure of traditional long-term-care insurance, are considering “hybrid” policies that combine life insurance with long-term-care benefits. But many still wonder if these policies really are a better way to manage the risk of catastrophic long-term-care costs.
Kiplinger’s article, “Hybrid Insurance Policies Gaining Steam," notes that the most popular hybrids attach a long-term-care rider to a whole or universal life insurance policy. People can usually pay a single up-front premium. If they never need long-term care, their heirs will receive the death benefit.
By paying a single premium or series of set premiums, you don’t have the risk of premium increases in the future. That’s an issue that has been a negative feature of traditional long-term-care policies. Many people have also balked at the “use it or lose it” concept that goes with traditional long-term-care policies. A hybrid policy’s potential death benefit eliminates that concern. However, those advantages aren’t as clear as they appear, since traditional long-term-care policies that are priced today have a low risk of future premium increases, according to new research by the Society of Actuaries. By giving up a large chunk of change for a hybrid policy, you’re giving up earning a market rate of return on that money.
When comparing hybrid products against traditional long-term-care insurance policies, think about how you might invest the money that’s not spent on premiums. If you would look for a moderate return and might need the money to cover living expenses, stand-alone long-term-care insurance may make more sense. With either choice, be sure to also consider inflation protection and evaluate how much you value a hybrid policy’s life-insurance component—which adds extra cost. For many of those purchasing hybrid products, life insurance is an afterthought.
If you really need life insurance, a hybrid product may not be the best choice. This is because a long-term-care claim will decrease the death benefit. If you need both long-term-care and life-insurance protection, buy both. Don’t merely take care of whichever one comes first.
Compare multiple long-term-care coverage options, and be sure to request and read the life insurance policy illustration, which outlines policy premiums, death benefits, cash values and other details.
Reference: Kiplinger’s (January 2017) “Hybrid Insurance Policies Gaining Steam"