Get Double Duty

Over the last few years, we have seen a proliferation of long-term care insurance. More financial advisors are realizing the need to recommend LTC insurance to their clients as a part of future financial planning.

Barbara Carrollo, a financial representative for Northwestern Mutual Financial Network, says that long term care insurance helps address the physical, emotional and financial ramifications of caring for a loved one who’s suffering from cognitive or physical impairments. The purpose of long term care insurance is to pay benefits in the case you suffer from cognitive impairment (e.g. Alzheimer’s disease) or need help with at least 2 of the 6 ADLs (Activities of Daily Living, which include bathing, eating, dressing, maintaining continence and transference).

Buying long term care insurance is tantamount to buying some peace of mind for the future, but there’s an opportunity cost involved. If you purchase LTC insurance but never get to use it, it’s the best possible outcome for your own health. But you’ll have wasted a lot of money in insurance premiums. That’s the precise question that’s motivated insurance services providers to come up with hybrid products that allow you to get some form of benefit on LTC premiums assuming you never needed care.

Long-term care with life insurance

An increasing number of insurance companies now have a life-LTC hybrid plan. This is basically a one-off premium life insurance plan that’s got cash value. To put it rather simply, you can just use it like any other typical life insurance. You can choose a lump sum payment of for a specific amount. In the event of your death, your heirs obtain a multiple of this lump sum account from the insurance company. The applicable death benefit could be about 2X what you invest into the plan. But this varies greatly from one company to the other.

Take, for example, John Hancock’s LifeCare

With John Hancock’s LifeCare plan, you can accelerate the death benefit of the policy so that it’s used for Long Term Care. That means if you ever need care at one point or the other, you can always draw from the death benefit so you pay for your needs.  In this case, the money you use on LTC will reduce the balance effective in your life insurance coverage. If there’s something left in it by the time you stop needing care, that remaining amount will still be paid out to your appointed beneficiary. This policy has a cash value, which means that you get back most of your money if you choose to cancel the LifeCare policy.

Long term care with annuity

Another hybrid option for procuring long term care insurance entails buying a single-premium annuity that has a long term care insurance rider. Genworth Financial Inc. is an example of a carrier that has this arrangement.  How does this work? You make a single lump-sum payment to buy an annuity. Assuming you don’t need long term care, your annuity will continue to increase in value. But in the case you need care, the money will be available to cover LTC costs at up to 3X the original premium.

Since January 1st, 2010, annuity plans play LTC benefits tax-free, thanks to the Pension Protection Act of 2010!