A Hybrid Approach to Long-Term Care Insurance

A Hybrid Approach to Long-Term Care Insurance

Long-term care (LTC) insurance is a mess. It’s expensive, certain policies or providers may not be available in a client’s state of residence, and who knows if the provider will still be in the business when the time comes to tap a policy’s benefits.

Emerging from the implosion of the Long-term care insurance marketplace and amid a pressing need to protect against this significant potential financial risk, financial advisors have increasingly looked to LTC riders on life insurance or annuity policies to help their clients address this critical financial challenge.

The Life Insurance Alternative

Life insurance can be used in two basic ways to help meet future potential LTC costs.

One way is through a linked benefit whereby a permanent life insurance policy is linked with an LTC policy. Typically, the LTC benefit amount is equal to about five times the lump-sum premium paid.

Another way is by adding an LTC rider to a life insurance policy at the time the policy is purchased—it can’t be added later. Since the benefits are not as rich, the rider approach is generally geared for those concerned more with life insurance coverage than LTC protection.

There are a number of advantages to this life insurance alternative, including guaranteed premiums, flexible premium payments (lump sum or over time), easier to qualify for coverage, may allow the insured to pay a family member for providing care and the policy’s cash value can be used to pay other expenses.

The downsides are that it may not offer the best coverage for your money, there is little ability to customize coverage, inflation protection may be missing, and LTC payouts can reduce a policy’s cash value or death benefit.

The Annuity Alternative

The annuity alternative is generally available with either fixed interest or variable contracts. The amount of LTC coverage is typically anywhere from double to triple the premium paid.

The advantages of this approach are flexible payments (monthly or lump sum), the opportunity for asset growth that can enhance future LTC coverage amounts (in the case of a variable annuity), easier approval standards, tax-deferred growth and principal protection.

Perhaps most importantly, it solves the use-it-or-lose-it drawback, allowing funds not used for LTC expenses to be paid to the insured or his or her beneficiaries.

Advisors play a valuable role in protecting clients from the financial damage LTC can inflict by educating them about their LTC funding options and which approach best fits their needs and circumstances.

Please reference disclosures: https://blog.americanportfolios.com/disclosures/

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