How to Pay for Both Long-Term Care and Life Insurance

Life expectancies of Americans continue to rise. More and more people are living well into their 80s, 90s, and even crossing the century barrier. The one major downside to longer lifespans is deteriorating health as you age, and the increased likelihood that you may require long-term care.

Long-term care insurance was created to address the needs of an aging population. It provides coverage for individuals who can no longer physically care for themselves. Generally, the benefits become available when you are no longer able to perform at least two of the six activities of daily life:

• Feeding Yourself
• Dressing Yourself
• Bathing Yourself
• Going to the Bathroom
• Moving from a Chair to a Bed (and vice versa)
• Continence

If you become eligible for coverage, you can receive your long-term care at home, in an adult day care center, assisted living center, or nursing home.

The challenge for many in our “insurance-poor” society is budgeting for long-term care insurance without sacrificing other important policies, such as life insurance. Most of us want our loved ones to be financially secure if we pass away, but we also want to avoid becoming a burden as we age. Hybrid life insurance was created to address both of these issues in a more affordable way.

How Does Hybrid Life Insurance Work: Hybrid life policies combine life insurance with a long-term care rider to provide both coverages under one policy. Hybrid policies are available with both term and permanent life insurance. For those on a budget, term life insurance is usually the preferred option. These policies are cost-effective and can generally be purchased for about 5% to 15% more than a stand-alone life insurance policy.

As with regular life insurance, you will most often be required to pass a physical exam to qualify, and prices will vary depending on your age, gender, health and other important factors. In general, the younger and healthier you are, the more affordable your policy will be.

Perhaps the best part about the hybrid life insurance/long-term care policy is its efficiency. The long-term care component is there if you need it; and if you do use it, the amount paid out is deducted from your death benefit. If you never need long-term care, however, your beneficiaries receive the full death benefit from the policy when you die.

Here is an example of how a hybrid policy might work. Assume you purchase long-term care/life insurance with a $500,000 death benefit. In your later years, you require long-term care, which you receive at home. The care costs $25,000 per year, and you receive it for the last ten years of your life. In this scenario, $250,000 is spent on long-term care, and $250,000 is left over as a death benefit.

One potential downside to such policies is requiring long-term care for so long, it exhausts all of the death benefits. There are policies, however, that allow you to draw a small death benefit (usually $10,000 to $25,000), even if you zero out your policy paying for long-term care expenses.

If you are trying to figure out how to pay for both long-term care and life insurance, a hybrid policy may be your solution. To find the right policy for your needs and budget, it is best to speak with an independent insurance agent. Independent agents work with several of the top insurers in your state, and because they are not captive to any one particular carrier, they can shop objectively on your behalf and help you find the policy that best protects the financial interests of you and your family.