How Life Insurance With Long-Term Care Works

Life insurance with long-term care can help you pay long-term care expenses while preserving assets for your beneficiaries. Combination life insurance policies have become popular products in the insurance industry since they provide life insurance benefits along with a rider to cover long-term care. We often realize early in life that we need life insurance to provide for a spouse, partner or children in case of our death. Investing in a life insurance policy usually occurs by the time we are in our forties and often before. It is important to be covered by life insurance early in life. If something were to happen to us, our family might need income replacement.

A financial advisor could help you combine life insurance with other financial planning and wealth management strategies for your long-term care needs.

Do You Need Long-Term Care Insurance?

As we get a little older, we may consider buying long-term care insurance because we don’t want to saddle our families with the financial and emotional costs of taking care of us if we become ill or disabled. Long-term care policies are typically expensive and it’s hard to find room in our budgets to afford them. Life insurance policies become less necessary as we get older because the mortgage may be paid off and the kids have graduated from college, so replacing income isn’t quite as necessary. We start to worry about long-term care as we age and fear that we will outlive our money and become disabled or too ill to care for ourselves. A solution may be to take out a policy that combines life insuranceand long-term care. Here’s how life insurance with long-term care works.

Long-term care insurance pays for a portion of the care for a chronically ill or terminally ill individual that health insurance or Medicare won’t pay. It will pay benefits for stays in nursing homes and assisted living facilities as well as for in-home services. Some life insurance companies now offer a combination life insurance/long-term care insurance policy since due to rising costs, many long-term care insurance companies are shuttering their businesses and dropping out of the market.

A long-term care rider can only be attached to a permanent life insurance policy. Permanent life insurance policies are also called whole life or universal life insurance policies. They are more expensive since they cover you for your lifetime and the other option, term life insurance, covers only a certain period. Adding a long-term care rider to a permanent life insurance policy increases the expense. The rationale behind a combination or hybrid life insurance policy is that end of life benefits are all in one policy and that provides more flexibility and efficiency for the consumer. The only real drawback to either long-term care insurance or a combination policy is that you may spend thousands of dollars on the long-term care portion and never use it.

To purchase a combination policy, you must be vetted just as if you were purchasing just a life insurance policy or a long-term care policy separately. To obtain a large enough amount for adequate coverage, you will have to have a medical exam, submit your medical records and you will be asked several questions. Don’t wait until you are getting older to apply. If you have developed a chronic illness, your chances of obtaining the policy drop and the expense skyrockets.

Combination policies offer a couple of ways to pay for the policy. Some companies require you to pay the premium in full when you buy the policy. Other companies require that you pay large annual premiums for a maximum of ten years until the policy is paid in full. Either option means that there is a chance a combination policy will be too expensive to easily afford it. You do, however, get several times what you’ve paid for the premium back in long-term care benefits. If you don’t use all the money for that purpose, then your survivor’s receive the remainder as a death benefit.

Benefits may be paid as a set amount each month as an indemnity benefit. Benefits can also be paid as a straight reimbursement for long-term care expenses you incur.

Where Can I Get a Combination Policy?

If you are interested in a combination, you should do some shopping around among life insurance companies for availability, terms and rates. You can also check the credit rating of each of the organizations through several different credit ratings bureaus. Check first with AM Best since they write credit ratings for only the insurance industry. Moody’s and Standard and Poor’s also supply business credit ratings. You might want to get a list of the best possible life insurance companies and a list of good long-term care providers. It might help you make your decisions about a combination policy as compared to a long-term care policy.

Bottom Line

If you are interested in long-term care insurance coverage, you can get a policy just for that purpose or you can buy a life insurance policy with a rider for long-term care. This product is a relatively new offering. While the number of long-term care insurers has declined recently by around 20%, the number of life insurance companies offering life insurance with a long-term care rider has increased.

Tips on Insurance

Consider working with a financial advisor as you consider both your life and long-term care insurance needs. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Do you know how much life insurance you need to protect yourself and your loved ones? Use SmartAsset’s life insurance calculator to help you make an informed decision!
SmartAsset’s Estate Planning Guide can help you with decision-making for your final expenses.