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Long-term care insurance vs. combination life insurance: What’s right for you?

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About half of those who reach the age of 65 will eventually need long-term care. Whether they can afford that care is questionable. 

LIMRA recently said that 53% of Americans surveyed are worried about whether they can afford long-term care.

In the past, people turned to long-term care insurance as a way to provide for that time. However, over the past decade, combination life insurance has become the norm. 

What’s the difference and why are people more commonly turning to combination life insurance? Here’s what you need to know:

Who pays for long-term care usually? 

Medicare usually doesn’t cover long-term care. Medicare covers your medical expenses, but when it comes to long-term care, you’re generally on your own.

One exception is people who qualify for Medicaid. Medicaid will pick up a portion of the costs of long-term care. 

However, if you don’t qualify for Medicaid, you’ll need to figure out a way to pay for long-term care. That could result in your family selling your home to help pay for nursing home care. 

Long-term care can cost thousands a month. 

  • Assisted living facilities usually cost more than $3,600 a month. 
  • Nursing homes can cost $8,000 a month. 
  • Home care varies by the level of care needed, but it can cost even more than a nursing home depending on the care.

Most long-term care insurance claims are for home care. That’s especially true for a person’s first long-term claims, according to the Association of Long-Term Care Insurance.

First long-term claims by source: 

  • Home care -- 52%
  • Assisted living -- 25%
  • Nursing homes -- 23%

Final long-term care claims by source:

  • Home care -- 43%
  • Nursing homes -- 30%
  • Assisted living -- 27%

 

When can you use long-term care protection?

You can’t just say “I’d like to use my long-term care protection now” and then get money. 

A doctor must diagnose you with cognitive impairment or deem you incapable of performing at least two of six daily living activities:

  • Bathing
  • Continence 
  • Getting dressed
  • Eating
  • Toileting
  • Transferring (moving to and from a bed or a chair)

    Once a doctor signs off, you’re able to submit claims for your long-term care. 

    People might think of long-term care as something that happens to people in their 90s, but it can start sooner than you think. 

    The American Association for Long-Term Care Insurance said that almost one-third of long-term care claims are for people 80 or younger.

    Long-term care usually pays a certain amount depending on the claim. It could be per day for services or it might be per month depending on the care. 

    Once you get the OK for long-term care insurance, you, your family or your representative can file claims. 

     

    What is long-term care insurance?

    Long-term care insurance provides funding for long-term care. 

    The bad news is that there are only a handful of companies that still offer long-term care insurance. If you’re able to find a policy, you’ll pay a lot more than someone a decade ago. 

    The Association of Long-Term Care Insurance said there were more than 350,000 policies purchased in 2018. A whopping 84% was combination life insurance. Only 16% were traditional long-term care insurance policies. 

    Fewer than 100,000 people purchase long-term care insurance annually. That’s down from 750,000 in 2002. 

    Only about a dozen companies still provide new long-term care insurance policies. A decade ago, there were more than 100. 

    The reason why fewer companies offer long-term care insurance comes down to costs: 

    • People are living longer while getting long-term care. That means more money being paid out by insurers. 
    • Fewer people are buying long-term care policies, which means fewer dollars helping pay for those collecting benefits. 

    Insurers paid out $10.3 billion in long-term care claims in 2018 for more than 330,000 claimants. That’s an increase from $8.14 billion for 260,000 claimants in 2015. 

     

    How do you get long-term care insurance? 

    Getting long-term care insurance isn’t as easy as a decade ago. Fewer insurers mean there aren’t many to compete for your business. That can lead to higher rates.  

    You’ll also need a medical exam. The insurer will decide whether you’re a risk. 

    Younger people have a better shot at getting approval. Only 20% of people under 50 got denied for a long-term care plan in 2017. That’s compared to 44% of people in their 70s and 30% of those in their 60s, said the American Association of Long-Term Care Insurance. 

      

    How much does long-term care insurance cost?

    Long-term care policies cost a lot more than a decade ago. State regulators are concerned about the rising costs, but insurers argue the rate increases are needed to help the changing market. 

    Specific long-term care insurance rates vary by age, health, level of benefits and insurer. Here are 2019 annual premiums for a $164,000 policy, according to the American Association for Long-Term Care Insurance:

    • Single male, age 55 -- $2,050
    • Single female, age 55 -- $2,700
    • Couple, age 55 -- $3,050

     

    What to do if you have an expensive long-term care insurance policy?

    People faced with rising long-term care insurance have options: 

    • Keep the policy and pay the higher rates.
    • Talk to your insurer about other options. Alternatives include reducing the daily rate you’d get for long-term care or cutting the inflation rate on the policy, which means you’ll have a smaller payout. 
    • Drop long-term care insurance and lose the money you paid into it. 
    • Drop your policy and get one with a smaller payout. 
    • Drop your policy and get a combination life insurance policy. 

    Combination life insurance could be an option if they’re eligible for a permanent life insurance plan. This will likely mean having a medical exam. 

     

    What is combination life insurance?

    Combination life insurance is a permanent life insurance policy with a long-term care insurance rider. 

    This rider allows you to tap into your long-term care savings if you need it. You don’t pay taxes on it. If you don’t use it, the money will go toward a death benefit. 

    You can add other riders to the policy like:

    • Accelerated death benefits
    • Disability income 
    • Critical illness

    Combination life insurance made up 27% of the total individual life insurance market last year. So, more than one-quarter of new life insurance policies have a long-term care rider. 

    Once a doctor signs off, you get a percentage of the overall death benefit for the insurance rider. An example is if you have a $200,000 life insurance policy and a rider for 3% a month for long-term care, you could tap into $6,000 a month for long-term care expenses. 

     

    How much does combination life insurance cost? 

    Combination life insurance isn’t cheap. 

    A combination life insurance policy may cost you $75,000 if you’re willing to pay one lump sum for the long-term care rider. It may cost more if you spread out the payments over a few years. So, it’s not usually an option for someone who doesn’t have money available. 

     

    How do you get combination life insurance?

    Unlike long-term care insurance, many insurers offer combination life insurance. 

    If you already have a permanent life insurance plan, you can talk to your insurer about adding a long-term care rider or changing policies. 

    Since it’s a permanent life insurance plan, you can also add other riders to create a policy that works for you. 

    Once you find a policy for you, the insurer will likely ask a series of health-related questions and you’ll probably need a medical exam. The insurer will decide about approval and your rates by the answers to those questions and the exam.

     

    Differences between long-term care insurance and combination life insurance

    There are many differences between long-term care insurance and combination life insurance. Here are a few of them:

     

    Life insurance

    • Combination life insurance provides permanent life insurance. Long-term care insurance is just that. Only for long-term care. 

     

    Costs

    • Combination life insurance is more expensive than long-term care insurance.
    • Long-term care insurance premiums increase as you age. Combination life insurance premiums are usually consistent. 
    • You lose any money not spent on a long-term care insurance policy. An estimated 73% of long-term coverage ended with a death in 2018 and 14% when a person exhausted benefits. 

     

    Payouts

    • Long-term care insurance usually has larger payouts than combination life insurance. 

     

    What long-term care plan is right for you? 

    It depends on your situation, finances and what you want out of your coverage. 

    Here are questions to ask yourself:

    • What do you want out of a policy? Do you just want long-term care coverage or the ability to transform that money into a death benefit? 
    • How much money do you have to spend on a policy? 
    • Do you already have life insurance or do you need a policy?
    • Do you have beneficiaries who need a death benefit? 
    • Are you OK with spending higher rates for long-term care insurance as you age? 

    The answers to those questions will help you figure out what’s a better choice. 

    Then, your next step is to talk to a financial planner. Create budgeting and financial modeling to figure out whether you need long-term care protection. 

    If you feel you need it, shop around and get quotes from multiple companies. You may want to price both long-term insurance and combination life insurance to see which avenue makes sense for you.

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