If you’re one of the millions of baby boomers approaching your golden years, you’ve probably given consideration to the purchase of LTC (long-term care) insurance. You may also be concerned that you’d be throwing your money away. It’s possible that you could pay a lot in premiums and never need the coverage.
Jim Lange has always felt that if a husband and wife had enough money to provide for both of their potential long-term care expenses, they were really just insuring their estate. In that case, Jim would typically advise that life insurance was a more certain bet.
Now there’s an alternative to LTC insurance and that was the topic on the July 1st edition of The Lange Money Hour: Where Smart Money Talks. Guest Tom Hall of Capitas Financial/Pittsburgh Brokerage explained the ins-and-outs of a relatively new hybrid product that is essentially a life insurance policy with a long-term care rider.
It works like this — if you need long-term care, the insurance company will pay for your care. The amount the insurance company pays you will be subtracted from your death benefit. If you never need long-term care, your life insurance death benefit will remain the same.
All of this is acheived with a single premium that is significantly lower in cost than separate LTC and life insurance policies. Plus, if you do need to tap into the long-term care coverage, you will be withdrawing the money income tax-free. In this way, this hybrid policy becomes an effective estate planning tool. You avoid the possibility of dipping into your retirement plans and paying taxes upon withdrawal.
Tom Hall pointed out that, just like any other policy, you can be turned down for this hybrid product. However, it also works the other way. Some people who don’t qualify for LTC coverage may qualify for life insurance with an LTC rider.
By the way, if you currently have a life insurance policy, you can’t just call your agent and add an LTC rider. An entirely new policy needs to be put in place.
We’d also like to thank the listener who emailed the question asking what happens to your premiums if your insurance company goes bankrupt. We’re glad she asked because it gave Tom the chance to explain that in Pennsylvania, if your insurance company fails, you are protected for up to $300,000.
Of course, this hybrid product isn’t for everyone — in some cases, straight LTC coverage might still be the better idea. Each case needs to be evaluated on its own. As always, the Lange team is happy to provide you with a thorough analysis — just contact the office toll-free at 800-387-1129.