Four Types of Long-Term Care Insurance
By Joe Globensky, RFC®
Americans are living longer, and while that’s good news, it also increases the chances that you’ll need long-term care (LTC) at some point in your life. That’s why planning for long-term care isn’t so much a question of “will you?” but a question of “how will you?”
November was Long-Term Care Awareness Month. And we offered a glimpse of what we mean when we say long-term care and ways you can pay for long-term care expenses. We want to follow this up with a discussion on the four types of long-term care insurance that can help you pay for these costs.
Traditional Long-Term Care Insurance
Traditional long-term care insurance has the longest track record of available options. It is insurance coverage designed exclusively to pay for your qualifying LTC expenses. You get to choose from a range of LTC coverage options. This can be a cost-effective way to cover your future LTC needs. The benefits are tax-free in most instances, and a portion of your premiums may be tax deductible.
The biggest downside to traditional LTC insurance is that premiums are not guaranteed and can increase, resulting in higher premiums if you have an existing policy. Only qualified long-term care costs are covered. If you don’t qualify for benefits, there’s no benefit for you. And when you die, there is no benefit for your family.
This solution can be an attractive option if your primary need is LTC and you don’t have wealth transfer or legacy planning goals to solve for.
Hybrid LTC and Life Insurance/Annuity
This type of plan combines both LTC and life insurance or an annuity in one policy. It can provide LTC coverage should you need it and a death benefit for your heirs. You can get most of your premiums back if you decide to cancel the policy. And you have a potential for higher benefits based on the performance inside your life insurance policy or annuity contract.
As with most LTC solutions, only qualified long-term care costs are covered. And while there is a death benefit, it is minimal when compared with other life insurance solutions.
A hybrid plan can be an attractive option if your primary need is LTC coverage, but you also want some death benefit or income protection. It keeps you from having to buy a separate life insurance policy or annuity contract.
Life Insurance with an LTC Rider
This is a life insurance policy that offers an LTC rider, which accelerates the death benefit to pay for long-term care. You have access to one pool of money that provides a death benefit to your family if you die, but you can also access it to pay for LTC expenses while you’re alive and you qualify. LTC riders are available on several types of permanent life insurance products. And there are typically no rate increases for existing coverage.
The downside is the money you use while alive for LTC needs will reduce the amount of benefit your family receives upon your death.
This type of long-term care insurance can be an attractive option if your primary need is life insurance and you also want the ability to use the life insurance policy to pay for certain LTC expenses.
Life Insurance with a Chronic Illness Rider
This plan is life insurance that also offers a chronic illness rider. You have access to one pool of money that provides a death benefit for your family if you die, but you can also accelerate your access to it if you need to while you’re alive and you qualify. There are typically no rate increases for existing coverage. And you can use the money for anything, including medical and non-medical expenses.
And, like life insurance with an LTC rider, the money you use while alive for your chronic illness needs will reduce, and can eliminate, the amount of benefit your family receives upon your death.
This solution can be an attractive option if your primary need is life insurance and you also want the ability to use the life insurance policy to receive cash benefits if you become chronically or terminally ill.
Deciding between types of long-term care insurance depends on your current financial situation and your anticipated need for care. At Connections Financial Advisors, we want to start the discussion early so we can help you make the best choice for you and your family. If you would like to start planning for your potential long-term care need, please give us a call at (217) 605-8130. You are under no obligation, but the sooner you start, the more flexibility you might have with your decisions.
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