As the number of people over age 60 continues to increase, a unique insurance combination product that features both long-term care benefits and life insurance is quickly growing in popularity.
According to LIMRA, a worldwide research, consulting, and professional development not-for-profit trade association that serves the financial services industry, 26% of Americans now say they will consider getting a combo policy that features both life insurance and long-term care benefits.
This is an important development considering that the number of persons aged over 60 is expected to double from 962 million to nearly 2.1 billion globally by 2050.
If you are reading this you too may be considering what type of insurance product makes the most sense for you or a loved one going forward in a post-pandemic world.
For example, you may be comparing the benefits of traditional life insurance vs variable universal life insurance (VUL). You may also be researching such concepts as life insurance beneficiaries and wills.
Well, now there is something else to consider – life insurance with long-term care benefits. In this article, we’ll take a closer look at exactly what combination policies include and how to determine if they may help you get the most effective coverage you need as you age.
A Hypothetical Combination Policy Example:
A 65-year-old male nonsmoker pays a single premium of $150,000 for up to $600,000 of long-term care benefits that could be paid out over a six year period. If the long-term care benefits are never used, the policy would then pay out a death benefit of $200,000 to a beneficiary. Also, after five years, the policy holder could cancel the policy and receive his initial $150,000 back – provided he hadn’t used any of the benefits.
Now that you have a better idea of what is possible with a combination policy, let’s take a closer look at their inner workings.
Long-Term Care Insurance Guaranteed Renewable Policies
The truth is combining long-term care insurance with life insurance in one policy can offer a number of benefits. For example:
- You ensure financial protection in the worst case, as well as aid with long-term care costs that may come with aging.
- The cost of the policy can be a good investment when compared to keeping the money in a low-yield savings account or something similar.
- By paying a lump sum or a limited number of payments you may avoid premium hikes – for example some long-term care policy holders have seen their premiums double recently as care costs soared and insurer investment income declined.
- Some policies include a money-back guarantee that enables claim holders to have their premium refunded within a certain amount of time.
The biggest disadvantage of getting a combination long-term care and life insurance policy is the possibility of paying for something that you will never need.
For instance, you may remain in relatively good health so that you can live alone or easily be cared for by a relative. On the other hand, one could also unfortunately pass before you need long-term care.
Either of these scenarios would render the long-term care portion of the combination policy unnecessary.
That’s why many people are still opting for traditional life insurance – such as permanent life insurance that covers you for your entire life or term life insurance that covers you for a certain period of time.
One more disadvantage of a combination policy is that you may need a relatively high amount of money to pay a lump sum for the long-term care benefits.
A majority of combination policies, more than 40% of them, feature a single premium face amount between $100,001 and $200,000. That is a lot of money for a single premium and makes securing this type of coverage rather disheartening and difficult.
If you do have that type of money and want to get a combination policy there are some additional things to consider when comparing offerings. Those things include:
1) Long-Term Care Inflation Rider
Some combination insurance policies offer inflation protection. With this type of policy, future or ongoing policy benefits are adjusted upward to account for inflation.
Under a long-term care inflation rider the benefit levels are something to particularly pay attention to. Benefits can vary widely and must be carefully considered to determine what is best for you and your loved ones.
Often with this type of rider, the increase starts in the second year with a rise in value that is equal to a percentage of the original policy value.
So when considering whether to add an inflation rider, be sure to take a close look at how the daily benefits of the combination policy increase each year and for how long of a period that they increase.
2) Nonforfeiture Benefit Long-Term Care Insurance
The nonforfeiture benefit must be offered with long-term care insurance and is included in standard life insurance as well.
This benefit ensures that even if a policy lapses, the policyholder still receives some benefits from the policy after a certain number of years. In general, policy holders receive a cash value that is equal to or less than the amount of premiums paid.
3) Long-Term Care Insurance Guaranteed Renewable
If you have a guaranteed renewable policy that means that your coverage cannot be ended as long as the premiums are paid on a timely basis.
So if your health declines the insurer cannot terminate your policy. Please keep in mind that companies can place benefit limits on a policy or exclude certain benefits under certain policies.
The Next Step: Applying for a Combination Policy
To apply for most combination policies you will need to supply medical records and also complete a life insurance medical exam that will measure, among other things, your height, weight, cholesterol, blood pressure, blood glucose, and more.
However, there are some combination policies that do not require a medical exam. With these policies, answering health questions online or by phone may be enough to satisfy the underwriters.
One thing to keep in mind is that by taking a medical exam you may qualify for lower rates due to your good health.
Now that you know all about combo life insurance and long-term care policies you can make an informed decision about what direction you want to go with your insurance.
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