NEVER* Combine Long-Term Care Insurance with Life Insurance (Part 1)
3 Reasons Why Insurance Companies Want You To Buy
A Single-Premium “Hybrid” Policy
A “hybrid policy” is a life insurance policy that includes long-term care benefits.
Most “hybrids” are sold as single-premium products. You don’t pay premiums once a month or once a year. You make one large premium payment.
Insurance companies love it when consumers buy these single-premium products for three reasons:
1) They earn money on your money for a very long time.
You pay them a large lump sum and they earn money on your money for the rest of your life. Even though the policy may say you are earning 3% or 4% or more, when you look at the guaranteed cash value on the illustration the actual growth (after fees) is usually 1% or less. The first reason NOT to buy a single-premium “hybrid policy” is that you lose out on the money you could have earned if you’d kept the single-premium yourself.
2) When you need care, they use your money first.
If, for example, the single-premium is $100,000, they’ll use that money to pay for your care FIRST before they use their own money. If the single-premium is $100,000, essentially you’re buying a long-term care policy with a $100,000 deductible.
3) When you need care, you'll have to use even more of your own money.
A $100,000 single-premium “hybrid” policy will probably pay less than $4,000 for each month that you need long-term care. From the very first month you need long-term care you’ll have to use your own money in addition to the $4,000 the insurer gives back to you each month. Most “hybrid” policies have no inflation protection. Twenty years from now, if care is costing $12,000 per month, you’ll have to pay $8,000 per month from your own money to make up the difference.
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Wouldn’t it be better to just keep the $100,000 yourself and earn what you can earn on it? If you could earn 3% on a conservative mutual fund, you could earn enough each year to pay the annual premium of a well-designed long-term care policy that has inflation protection built into it.
If you never need care, your heirs will still get the $100,000.
If you need care, you can keep the $100,000 and your long-term care policy will pay for most of the cost of your care.
If you buy a long-term care insurance “partnership policy” you can protect your assets from Medicaid even if your long-term care policy runs out of benefits.
Here’s what happened with one of our clients:
Recently we helped a client of ours, age 69, obtain a long-term care policy that qualifies under the Long-Term Care Partnership Program in his state. He wants to protect $200,000 of his assets if he ever needs long-term care. He was able to purchase a long-term care insurance “partnership policy” for less than $190 per month. If his long-term care policy runs out of benefits, he can apply for Medicaid to pay for his care and his assets will be protected.
His life insurance agent suggested he buy a single-premium “hybrid” policy with a $200,000 death benefit. The death benefit could be used for long-term care, if needed. The single-premium “hybrid” would cost $84,000.
He was able to get $200,000 of long-term care asset protection for less than $190 per month.
Or, he could get $200,000 of benefits from the single-premium “hybrid” for $84,000.
This is one reason why we say you should NEVER* combine long-term care insurance with life insurance.