1. Is a combined life insurance policy a good fit for your needs?
According to Neal Kerins, assistant vice president of insurance product management at John Hancock Insurance, hybrid policies tend to have the greatest appeal for consumers in their late 40s to early 70s who are concerned about incurring hefty long-term care costs and don't want to depend on family during their last years or burden them financially after their death.
"The last thing people want to do is be dependent on family members for their care," Kerins says.
Combined life insurance policy also appeals to those who want to leave an inheritance or money for final expenses when they die. The hybrid policy does both with a single premium.
If you're interested in a hybrid life insurance policy, you typically need to make that decision when you purchase life insurance. It usually isn't possible to add a long-term care rider later, according to Kerins.
2. Will you save money by buying hybrid life insurance?
You won't likely save money with the purchase of a hybrid life insurance policy over buying long-term care insurance alone, but you may save money over the purchase of life insurance and long-term care insurance separately, depending on the amount of coverage you need.
According to the AARP, the average cost of a long-term care plan with $160,000 in benefits is $900 a year, but provides no death benefit. That same man would pay about $3,540 a year for a hybrid policy with a $180,000 pool of benefits and a minimum death benefit of $120,000.
Adding a long-term care rider to an existing life insurance policy is often a cheaper option, per the AARP. No matter which option you choose, the younger you buy, the less you will pay.
3. Will I qualify for a hybrid life insurance policy?
Whether you qualify for a hybrid life insurance policy depends on the company's underwriting requirements. Like a standalone life insurance policy or long-term care policy, you'll typically need to undergo a medical exam to qualify for a hybrid policy. Insurers may request copies of your medical records, might require a statement from your physician and are likely to ask you to complete a health survey.
Each insurance company has its own rules regarding who qualifies. In addition, how much you pay for a hybrid life insurance policy will depend on what is uncovered during the underwriting process including the results of the medical exam. You may qualify but be charged more because of your age or a chronic illness.
4. Do I need both life insurance and long-term care coverage?
You need both life insurance and long-term care coverage if you don't have savings or other assets that can provide for your care while you're still alive and leave a financial safety net for your family when you die.
If you have a combination life insurance policy and don't use the long-term care benefit, your heirs will still receive the value of your life insurance policy -- such as $250,000 or $500,000 or $1 million -- when you die.
If you do need long-term care, the death benefit is accelerated. That means you receive a portion of the face value of the policy each month. With John Hancock, you can receive up to 4% of the death benefit each month, Kerins says.
The insurance benefit kicks in when you can't perform two of the six "activities of daily life." Those activities include:
- Bathing yourself
- Dressing yourself
- Going to the bathroom on your own
- Feeding yourself
- Moving from a chair or bed without assistance
- Continence
"It ends up being a living benefit of a life insurance policy," says Frank Chechel, second vice president of life product management at The Guardian Life Insurance Co. of America.
If you are injured or become ill and need assistance, you'll typically have to wait a certain period of time, such as 90 days, before your long-term care coverage takes effect.
Should you need long-term care, you can receive assistance at home, in an adult day-care center, in an assisted-living facility, or in a nursing home. Most long-term care claims are for in-home care.
5. What are the pros and cons of combination life insurance?
The benefits of a combination life insurance policy include coverage for both needs under a single policy. However, if you need long-term care for an extended period of time, you risk zeroing out your policy and having nothing left to leave for your heirs, and these policies tend to be less flexible.
However, with some policies, you may be able to draw down your entire benefit, while the policy still pays out a small amount to your loved ones when you die, such as $10,000 or $25,000, according to Chechel.
For example, with Nationwide's long-term care rider, you can manage long-term care expenses and use excess funds any way you wish. And you will still be able to leave an inheritance if the rider benefits are not needed or completely utilized. Nationwide's plan is set up so beneficiaries receive the greater of an unused long-term care benefits or 10% of the policy's specified amount due to a guaranteed death benefit.
Standalone long-term care policies tend to be more flexible and have more options to choose from than a hybrid policy.
Some of the coverage with hybrid policies is limited, warns Leonard Wright, a San Diego CPA. For example, assisted living benefits may be limited to a percentage of the cost of nursing home care, such as 60% to 75%. Some policies also exclude mental and nervous conditions, which can be common for senior citizens.
Research before you buy life insurance with a long-term care rider
If you don't have dependents, or if you have assets that your dependents can rely upon, you may need little to no life insurance. If you don't need to have life insurance coverage, Kerins recommends opting for a standalone long-term care policy.
Depending upon your personal risk factors, such as life expectancy, gender (women often live longer than men), your family circumstances and health history, your may be more or less likely to require long-term care.
Wright recommends requesting a sample policy so you can read through it and understand the details of the long-term care provisions. It's also important to know what will happen to the cash value of the policy if you need long-term care.
If you can afford it, you may be better off with a separate life insurance policy and long-term care policy. But a hybrid policy may be ideal for those who need to minimize insurance premiums.
"A customer has to really evaluate what their personal needs are," Kerins says.
In the final analysis, whether a combination life insurance policy or long-term care insurance is right for you depends on what you want from your policy, your finances and your situation.
