The new hybrid: linking life and long-term care insurance
Life insurance policies that offer long-term care benefits have taken off in the last few years as baby boomers strive to protect their assets.
Sales of linked or combination life insurance products rose 20 percent last year over 2010 when measured by premiums, and the number of people covered by the policies increased 13.5 percent, according to the American Association for Long-Term Care Insurance.
These permanent life insurance products are geared to well-heeled buyers in their 50s and 60s who have enough money to self insure for long-term care, but want some insurance to protect their portfolios in case long-term care expenses exceed their expectations.
Generally, you pay a single large premium for a combination policy, typically $100,000 or more. The policy provides long-term care benefits up to a certain number of years if you need them, or pays a death benefit to your beneficiary if you don't use the long-term care benefits. Some policies also feature a return-of-premium option, which lets you get your money back if you decide you don't want the policy after all.
Insurance companies, such as Lincoln Financial Group and Pacific Life, also tout streamlined application processes for the products. You answer questions about your health history, but you don't have to undergo a physical exam or blood tests.
Is a combination policy right for you? Consider the following:
• Can you afford the premium?
If you can't part with a large chunk of money without shorting yourself for retirement, then shop for a traditional long-term care insurance policy to protect your portfolio. Remember that Medicare and traditional health insurance do not cover long-term care expenses, which can quickly devour a nest egg.
• Do you really need permanent life insurance?
A permanent life insurance policy helps protect your estate after you die. Your heirs can use the death benefit to pay the estate taxes. It also can pay any final expenses, such as debts and funeral expenses. If you don't anticipate significant final expenses or have a sizable estate to protect, you may not need permanent life insurance. A traditional long-term care insurance product might be the better choice.
• How much long-term care insurance do you need?
The beauty of combination products is their flexibility. But don't let that selling point override important considerations. Evaluate your needs before you buy to ensure the policy provides the amount of coverage you want. Read the fine print, and ask about options, such as inflationary protection, which allows long-term care benefits to increase to keep up with inflation.
Although combination policies provide a sensible solution for some buyers, they're not for everyone. Compare the products to standalone insurance policies to see which are best for you.
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