Long-Term Care Insurance

Long-Term Care Insurance (Traditional Policy)

Traditional Long-Term Care Insurance provides a daily benefit to you if you meet the Long-Term Care Insurance Policy’s requirements.  Typically these requirements are based on activities of daily living.  The benefit pays out for a maximum number of months based on your policy’s design and typically has a required waiting period or elimination period (think deductible).  

A typical policy might provide $250 per day of benefit ($7,500 per month) for up to 60 months (5 years).  Once the policy pays out $450,000 (which is $7,500 per month for 60 months) the policy will be exhausted.  For an additional cost you can buy a return of premium rider if you never use your benefit.

The premiums of a Long-Term Care Insurance Policy can be deducted from your taxes as a medical expense.  Most people though are not able to deduct the premiums because they don’t spend enough money in a typical year on medical expenses to qualify for the deduction.


Hybrid Long-Term Care Insurance

Hybrid Long-Term Care Insurance is a Life Insurance Policy with a Long-Term Care Rider attached to the policy.  It works completely different than a traditional Long-Term Care Insurance Policy and has a few advantages over a traditional policy.

Hybrid Long-Term Care Insurance works by buying a Universal Life Insurance Policy or a Whole Life Insurance Policy.  The Long-Term Care Insurance Rider then allows you to access, typically, up to half of the Life Insurance Policy death benefit for Long-Term Care should you require it during your life.  When you die the Life Insurance Policy pays the purchased death benefit to your beneficiaries less an money used during your lifetime for Long-Term Care expenses.

For example… Using the example above in the Traditional Long-Term Care Insurance Policy you want to be able to use $7,500 per month for Long-Term Care for up to 5 years should you need it.  This means you would need a $900,000 Life Insurance Policy.  The insurance company would let you “pre-withdrawal” up to $450,000 for Long-Term Care ($7,500 x 60 Months).  If, for example, you used during your life only $200,000 for Long-Term Care the Life Insurance Policy would pay out $700,000 to your beneficiaries.

The obvious advantage to a Hybrid Long-Term Care Insurance Policy is, no matter what, the policy will get used.  It will pay at a minimum the death benefit.  Thus you aren’t wasting your money if you don’t ever use the Long-Term Care portion of the policy.

Typically speaking the Hybrid Long-Term Care Insurance Policy is a little bit more expensive than a standalone Universal Life Insurance or Whole Life Insurance Policy.  However, the extra expense for the Long-Term Care Rider is not significantly more.  Usually the cost of a Hybrid Long-Term Care Insurance Policy is only marginally more expensive than a Traditional Long-Term Care Insurance Policy.

Another plus to the Hybrid Long-Term Care Insurance Policy is it functions just like a Universal Life Insurance or Whole Life Insurance Policy in that it builds a cash value which may be accessed if needed.  The cash within the policy is going to grow tax deferred and if loans/withdrawals from the policy are done properly you can experience some exceptional tax advantages with the policy versus an bank CD.

On the downside, the premiums of the Hybrid Long-Term Care Insurance Policy will never be qualified as a medical expense and thus cannot be deducted from your taxes as such.  Remember though, most people, don’t ever get to deduct medical expenses.

There are different underwriting issues with a Hybrid Long-Term Care Insurance Policy versus a Traditional Long-Term Care Insurance Policy.  With the traditional policy the insurance company doesn’t care if you as much if you are in poor health and likely to die; if you die before the Traditional Long-Term Care Policy pays out benefits to you the insurance company wins so to speak.  With the Hybrid Long-Term Care Insurance Policy the insurance does care if you are in poor health and at risk of dying before your life expectancy.  Thus when the insurance company underwrites a Hybrid Long-Term Care Insurance Policy they are far more strict on whom they will insure.

Today there are stand alone Long-Term Care Insurance (LTC) policies and there are hybrid Long-Term Care Insurance policies.  Hybrid LTC policies typically combine a Life Insurance Policy with a Long-Term Care Insurance policy.  There are benefits to both.

To discuss Long-Term Care Insurance or get a quote please call us at 480-442-5592.  

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