Life insurance with a long term care insurance option has become a popular choice for individuals who need life insurance, and who are interested in having access to long term care insurance benefits, if the need arises. It has also become a good alternative for individuals who are interested in making sure they don’t disinherit their heirs buy purchasing a standalone long term care insurance policy that is never used.
One of the primary reasons people are sometimes hesitant to purchase long term care insurance is because of the concern they will never need long term care. And, the premiums they would have paid for a traditional long term care insurance policy would be wasted. Life insurance with a long term care insurance option helps alleviate this concern by paying a death benefit to the beneficiaries in scenarios where long term care is not required by the insured. In addition, if the insured does require care, but passes away prior to utilizing all of the policy long term care insurance benefits, the remaining death benefit will be paid to the beneficiaries.
For example, let’s assume a 55-year old purchases a $250,000 life insurance policy with long term care insurance benefits. Thirty years later, at age 85, the insured requires long term care. Assuming the policy was structured to payout four percent of the death benefit on a monthly basis for long term care needs, the insured would be eligible to receive $10,000 per month. If the insured required long term care for 10 months and then passed away they would have used $100,000 ($10,000 benefit per month times 10 months) of long term care benefits from the life insurance policy. The remaining $150,000 ($250,000 death benefit less $100,000 of long term care benefits) would pass to the insured’s beneficiaries’ income tax free.
A number of different companies offer life insurance with long term care benefits. Like traditional long term care insurance, each policy varies slightly from others. However, most policies are generally similar. What’s important to note is that not all life insurance policies offer a long term care insurance benefit. And, in order to have this benefit, the life insurance policy must be purchased with this option. This option is usually only available in the form of a policy rider, which is considered an add-on or option to the base life insurance policy.
How Does It Work?
When purchasing a life insurance policy with a long term care insurance rider you are making the election to accelerate the policy death benefits to pay for qualifying long term care expenses. This usually occurs once the elimination (or waiting) period of the policy has been satisfied (90 or 100 days). Some policies offer the option to “continue” or “extend” the long term care coverage available up to double the death benefit, for an additional cost. For example, a policy with a $100,000 death benefit would provide $200,000 of long term care benefits.
With many of these policies, the maximum amount of long term care benefits available for qualifying long term care expenses is based on a percentage of death benefit. This percentage will usually range from one to four percent of the policy death benefit. The maximum monthly benefit available is usually elected when the policy is applied for, not when the insured begins to receive benefits. The chosen percentage is important because it will also affect how long you will receive benefits.
For example, if a $200,000 policy is purchased with the option of receiving 2% as the maximum monthly long term care benefit, the insured would be eligible to receive up to $4,000 per month ($200,000 death benefit times two percent). Assuming the insured receives $4,000 of benefits every month the coverage would be exhausted in 50 months or 4 years 2 months ($200,000 death benefit divided by $4,000 monthly benefit). Using the same example, but electing to receive 4% as the maximum monthly benefit would result in the insured being eligible to receive $8,000 per month. If the insured uses $8,000 per month the long term care benefits would be exhausted in 25 months ($200,000 death benefit divided by $8,000 monthly benefit).
Are There Any Health Qualifications?
Yes. When applying for life insurance with long term care insurance benefits you will be subject to the insurance companies underwriting requirements. This will include a review of your medical records, along with a paramedical examination, and a personal history interview.
Because underwriting is a necessary requirement in order to be eligible to purchase this type of coverage, it is important to do so prior to having any medical ailment that would otherwise preclude you from obtaining a policy. The younger and/or healthier you are when you apply for coverage the more favorable and less expensive the cost of the policy will be.
Are there Disadvantages that Might Make Traditional Long Term Care a Better Choice?
Each case is different. It depends on what your personal planning goals and objectives are, and whether or not one policy satisfies these goals versus another type of policy. Generally, if you don’t have a need for life insurance a traditional long term care insurance policy may be a better choice. If you are not concerned about whether you will use the coverage or not a traditional long term care insurance policy can usually be less expensive. Also, some life insurance policies with long term care insurance options require a significant up front premium to secure the coverage.
How Can I Receive More Information?
As with most planning decisions, access to information and an understanding of what is available in the marketplace can be critical to making a good choice. Learn more by requesting a long term care insurance quote or by contacting one our licensed long term care insurance professionals at (877) 402-2235.
