Life Insurance You Can Use Before You Die

Life insurance is not a topic most people want to talk about, including me.  Either is long-term care insurance, but they do warrant consideration when looking at your comprehensive financial plan.  So, let’s kill two birds with one stone and take a look at a product that combines both of these insurances into one: Hybrid Life Insurance/Long-Term Care Policy, or Hybrid LTC Policy.

First, do you even need it? According to recent studies, nearly 70% of Americans turning 65 today will need long-term care at some point.  With those odds, you need to at least look at your options.

Here is an excerpt from an article that I recently read on this subject.  The link to the complete article is here: https://seniorslifeinsurancefinder.com/hybrid-long-term-care-policy/

What is Hybrid LTC Policy?

They are policies that bundle life insurance policies with long term care coverage.  They are asset-based products that can be categorized into two: accelerated death benefit riders and linked benefit products. The linked benefits offer long term benefits while the accelerated death benefit riders may be used to meet long term expenses. Both of them are treated as LTC insurance policies.

Thus, the hybrid long term care policies connect insurance benefits and long term care benefits. Such hybrid linked benefits may be funded by a single upfront payment of say $100,000 or $50,000. Even though, the policyholder may decide to make installment payment for 10-15 years.

Generally, most of the hybrid policies will give you a chance to choose the long term care benefit. It could be monthly, periodically or inflation protection. The period one may need to wait could be fixed by the insurer but it is mostly 90 days.

Note that the hybrid LTC policies guarantee the holder to receive back their premium if they decide that they no longer need the long term care. They also have another advantage in that the premiums never increase.

The policy will:

• Meet the cost of care should you need one.
• Provide an estate tax-free cover should you decide that you don’t need the care.
• Give your money back if you change your mind.

But for people who have liquid assets and who may not need retirement income, the hybrid insurance policy may not be of value to them. Notice that the policies do not offer LTC partnership protection.

The Best Hybrid Long Term Care Life Insurance Policy

How it Works

It combines long term care insurance and life insurance features. It then forms a single hybrid policy. In some cases, it pairs long term care cover with an annuity. So, it may just need a single upfront premium payment to guarantee benefits that are associated with annuity or life policy base.

The long term care coverage borrows from traditional coverage. It offers leveraged pay-outs to meet LTC expenses. It thus puts aside some money that can be utilized in providing care for a lifetime or a specified period.

In some cases, the policies may come with accelerated death benefit rider. It is intended to provide LTC services. So if the insured needs long term care service, the amount to cover for these expenses must be recovered from the value of the death benefit. In such a case, the accelerated death proceeds will be treated as free riders.

Insurance policies may require that you have standalone LTC rider. In such a case, you will need to pay more money to purchase the cover. But the policy is only available to people who already own a universal life, indexed universal life policies and whole life covers. It will not be available to the Term Life Policyholder.

Advantages of Hybrid Life Insurance with LTC

• The hybrid product guarantees that the premiums paid will be paid back as either death or LTC benefits.
• Medical underwriting is easy.
• The premiums paid are predetermined and fixed.
• When you repurpose the existing life insurance policy to finance LTC, it attracts preferential tax treatment.

Disadvantages

• It requires a single lump-sum payment of the premiums which may be too expensive for some people. Also, where installments are allowed, there are normally structured annual payments. It may be too costly to most people.
• The payouts made will reduce the death benefits or the cash value of the policy. It means that the dependents may not get anything upon your death.

 

These policies are relatively complex and need to be reviewed thoroughly to ensure that it is the best policy to suit your needs.  Let me know if you have any questions.

 

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassetmanagement.com