Life Insurance with Long-Term Care Benefits

Caring for an aging or disabled loved one is no easy task. Often, it’s both emotionally and financially taxing for the caregiver – especially if they require help with everyday tasks. Many families find themselves in the difficult position of juggling their loved one’s growing needs with their own lives and the increasing costs of care. 

Fortunately, long-term care insurance (LTC) policies can help bridge the gap of expenses, particularly for those with a disabling or chronic condition, and ease some of the financial stress associated with daily caregiving.

With an LTC, the policyholder can be reimbursed for expenses related to assistance with completing basic, daily tasks, such as dressing, bathing, or walking. Even better: some LTC plans can be wrapped into a life insurance policy.

However, those in the market for life insurance might not be considering long-term care benefits. Particularly because many believe they won’t need a benefit like this until they’re much older – but that can be misleading. In fact, over 40% of Americans in need of long-term care are under the age of 65. 

While no one likes the idea of becoming dependent on others for basic care, there are some important statistics about long-term care everyone in the market for life insurance should consider:

-By age 65, 50% of Americans have a chance of requiring long-term care.

-$172,000 is the current average cost of long-term care (in a lifetime).

-By 2055, the elderly population of 85 years and older will nearly triple from more than six million to over 18 million.

-There is a 70% chance that you will require long-term care of some kind at least once during your lifetime.

So, What Exactly is Long-Term Care?

In this context, long-term care insurance covers assistance with activities of daily living (ADLs), or in other words, the everyday tasks you cannot perform yourself due to a long-term physical illness, disability, or cognitive impairment. 

Long-term care is not medical or necessarily skilled care so it can be administered in-home or at a state-licensed, private assisted living, or daycare facility. These services are typically not covered by your private health insurance policy or by Medicaid or Medicare, especially on a longstanding basis. 

While Medicare and Medicaid can help cover certain long-term care services under specific circumstances, those wanting an additional layer of protection for their assets and savings or those who are looking to insure someone under the age of 65 may benefit from purchasing this type of policy. 

However, long-term care can be expensive and premiums generally increase as the policyholder ages. Plus, the plan only pays out for a certain number of years if and when the individual requires long-term care. 

Types of Life Insurance with Long-Term Care Benefits

Long-term care insurance policies are typically broken down into traditional or hybrid linked benefit policies. Traditional plans, or stand-alone policies, offer just the long-term care benefit whereas hybrid, or “linked” policies are life insurance policies with a long-term care benefit combined. Hybrids tend to be more expensive than traditional coverage but come with several, additional benefits than a standalone plan.

One aspect of hybrid policies that consumers may like is that it typically offers a guaranteed return of premiums. Or, in other words, if you or a loved one doesn’t need long term care, the money will be returned to your beneficiaries. 

Some hybrid policies also return a percentage of premiums paid if you cancel the policy before the end of the surrender charge period.

Those who cannot afford standalone long-term care insurance or feel the benefits of LTC don’t outweigh its costs may want to consider a hybrid policy that combines long-term care and whole or universal life insurance. 

Life insurance with long-term care benefits differs from its predecessor, traditional long-term care insurance, which is prohibitively expensive and has become even more so as of late with caps on payout amounts, term lengths, and ever-increasing premiums.

Most insurance providers have stopped offering traditional long-term care policies altogether because they are not profitable. Instead, the industry has shifted to offering hybrid products such as life insurance with a long-term care rider benefit.

Like whole life insurance policies, these life combination products also have a cash value component that policyholders can use to cover the expenses of assisted living if they ever require it or leave it as a death benefit for their heirs.

There are two types of life insurance policies with LTC benefits:

1. Life Insurance with an Accelerated Death Benefit Rider – which can be used for specific long-term care needs. This rider allows the policyholder to receive cash advances if diagnosed with a terminal illness.
2. Life Insurance with an LTC Rider – which is more expensive, but has benefits built in directly. The rider allows for coverage of hands-on care if the policyholder is unable to provide for themselves.

However, it’s important to note that both options are usually only available with permanent policies. 

Who Needs Long-Term Care?

It’s no secret that long-term care is costly. If saving a little extra on top of what is already being put away for retirement or emergencies is a challenge, or you know you won’t be able to eventually cover long-term care costs with Medicaid, then a long-term care benefit might be wise. 

Generally speaking, in order to qualify for long-term care coverage, the policyholder must be unable to complete two or more activities of daily living (ADLs) such as bathing, eating, dressing, going to the bathroom, or transferring, such as, moving from a bed to a chair or to the bathroom on their own.

Anyone at any age may require long-term care; however, as we get older, the likelihood of needing some form of long-term care increases. Currently, 11 million Americans regardless of age require long-term care with only 1.4 million living in a nursing home. 

For individuals under the age of 65 that need long-term care, this can be due to physical injuries, a disability, or developing a chronic disease such as Parkinson’s or Alzheimer’s at an early age. The need can also stem from a heart attack, stroke, or a traffic accident.
 
Regardless of age, the current average stay in a nursing home in the U.S. is one year. However, after that, the average length of stay is 4.2 years. 

Although costs are largely determined by where you live, the median annual rates for long-term, in-home health services is over $50,000 a year. For those in an assisted living facility, this can cost around $48,000 or more. In a facility with a private room, the cost can be over $100,000 a year.

Taking Care of Your Loved Ones

One of the main advantages of purchasing a hybrid policy is having a secured death benefit amount for beneficiaries in the event long-term care is never required. This also gives policyholders the ability to select a return of premium which will refund the money if the plan is canceled within a set number of years.

There are also some potential disadvantages to having a life insurance policy with a death benefit rider, as the annuity component of these plans can have a lower rate of return than other fixed-income investments and premiums may have to be paid more often.

Life insurance with long-term care benefits may be best for those who have ample savings and can comfortably invest in a plan with high premiums.

On the other hand, it may still be more profitable to purchase traditional LTC if the individual is hoping for a higher rate of return or thinks they may need those funds to cover additional living expenses down the road.

Whether you’re thinking about purchasing long-term care insurance or a combination product, consider inflation protection and look into buying separate life insurance and LTC if you think you may require long-term care or you are worried about using up your entire death benefit before your beneficiaries can.