These plans can be customized the best way other stand-alone long-term care policies can, with options comparable to automatic compound advantages growth to guard against inflation. 

Insurers have found a spot between what mass middle-class buyers are comfortable paying, which was around $1,700 per yr as of 2015 (the newest data available), so in the long run, we may even see more products like NYL’s MyCare.

Pros and Cons of Stand-Alone Long-Term Care Insurance

A stand-alone long-term care policy is a superb idea for individuals who can afford each today’s premiums and potential future rate hikes.

Alternatively, you pay annual premiums for all times for a product you may never use. And should you stop paying premiums and let the policy lapse, you could get nothing back.

Hybrid Long-Term Care Insurance

Hybrid life and long-term care insurance policies offer two kinds of insurance bundled right into a single product. Premiums could also be fixed for all times and never subject to extend, as stand-alone policy premiums will be. Medical underwriting could also be less rigorous than it’s for a stand-alone long-term care policy. These policies, when a continuation-of-benefits rider is added, can be good for people who find themselves searching for lifetime or unlimited long-term care advantages.

Three products are described below. A few of their features are unique, while others will be present in quite a few policies.

Michelle Adler, a financial advisor with Citigroup in Manhattan, says she likes a hybrid product from Lincoln National Life Insurance Company called MoneyGuard because your premium is guaranteed and your heirs can receive a death profit. The product is a universal life policy with an optional long-term care acceleration-of-benefits rider. It’ll provide a certain quantity of the life insurance policy’s death profit to pay for covered long-term care expenses if the policyholder needs care. It has no deductible or waiting period, unlike stand-alone long-term care policies.

When you resolve you don’t need to keep the policy, you’ll be able to get 100% of your premiums back after six years should you purchase the Value Protection Rider. And you should purchase additional coverage to guard against inflation. Clients can start funding a policy at age 40, giving them 25 years to have a totally funded policy by retirement. Other funding options are also available. 

If the policy is exhausted through long-term care withdrawals, it provides a small death advantage of just a few thousand dollars that may help with funeral expenses. Lincoln National Life Insurance Company has a superb, A financial strength rating from A.M. Best Rating Services.

Jason Veirs, president and owner of Insurance Experts, an independent broker that sells only life, disability, and long-term care insurance, says he likes a product from OneAmerica called Asset-Care. It offers a reduction to married couples who buy a policy together and a death profit that pays heirs when the surviving spouse dies if the long-term care advantages haven’t been used. He says it’s the only policy available on the market that permits two insureds to be covered on the identical policy. The 2 insureds don’t even should be married; partners or siblings may also reap the benefits of the joint-insured profit. While not a brand new product—it’s been around since 1989—it illustrates what a hybrid policy can do.

The policy also offers an optional continuation-of-benefits rider that gives lifetime long-term care advantages for each covered individuals. As well as, it has flexible funding options, comparable to paying a single premium, paying premiums for 10 to twenty years or paying premiums for all times. You possibly can leverage an asset you have already got, comparable to a CD or the funds in a 401(k) or an IRA, to pay for the policy.

Veirs says that he thinks this product is the most effective—if not the most effective—hybrid long-term care insurance products available on the market today. OneAmerica’s parent company has a superior, A+ financial strength rating from A.M. Best Rating Services. 

Financial advisor Richard P. Sabo, CFS, RFC, owner of RPS Financial Solutions in Gibsonia, Penn., says that one among the businesses he recommends for his clients, Midland National Life, sells life insurance that permits the policyholder to withdraw 2% of the death profit per thirty days to pay for home health care, assisted living or long-term care costs. When you buy a $500,000 policy, you’ll be able to get 2% of that, or $10,000 a month, for those kinds of care. The corporate pays the advantages on to policyholders, so that they can hire whomever they need to supply their care, including a relative. There’s no must submit receipts for reimbursement, and you’ll be able to decide to take lower than the monthly maximum in order that your advantages will last more and your death profit will probably be larger. The death profit can be accessed during life to assist pay for terminal or critical illnesses, comparable to a heart attack or cancer.

One other company Sabo uses is Nationwide. One policy he likes is named NationwideYourLife^® No-Lapse Guarantee Universal Life with a long-term care rider. “With traditional long-term care insurance, you purchase it and the value can go up over time, and should you never use it, you lose it. So the life policy in comparison with long-term care insurance is a significantly better option should you are healthy and might get the coverage,” Sabo says.

Tax Benefits of Hybrid Policies

With these kinds of policies, the amounts spent on care are subtracted from the policy’s death profit. The remaining amount goes tax free to the policyholder’s heirs, which may help with estate planning and reducing death taxes. As of 2022, the federal estate tax doesn’t kick in unless your estate is value $12.06 million or more, which affects lower than 0.01% of estates. This amount increases to $12.92 million in 2023, to account for inflation.

What affects the center class is that untaxed retirement account assets, comparable to those in a 401(k), 403(b), or traditional IRA, are taxable to the heir who receives them, unless the heir is a spouse.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 eliminated what was called the “stretch IRA,” a financial planning tactic that allowed some beneficiaries to stretch their required minimum distributions (RMDs) over their life expectancy and extend the tax-deferred status of an inherited retirement account. Under the SECURE Act, certain non-spouse beneficiaries of inherited retirement plans must take distribution of all amounts held within the plan by the tip of the tenth calendar yr following the yr of the retirement account owner’s death.

Without insurance, Sabo explains, “If you might have $500,000 in an IRA, then it could be eaten up paying for medical costs, and should you never go right into a nursing home, you continue to should cope with federal income tax, possible state inheritance tax and possible state income taxes.” He says that the majority of the policies he sells go to individuals who have about $300,000 saved up and need to guard their nest egg from medical costs and death taxes. The fee of the insurance policy is rather a lot lower than what is going to go to the heirs, he points out. Essentially, the insurance company helps pay the death taxes.

Pros and Cons of Hybrid Long-Term Care Insurance

A hybrid long-term care policy could also be a fit for individuals who need to make certain they’ll get something in exchange for his or her premium dollars and don’t just like the “use it or lose it” aspect of stand-alone long-term care policies. Also, it’s good for individuals who want to go away money to their heirs in the event that they can but will probably be okay if their heirs receive nothing as a result of long-term care having exhausted the policy.

That being said, some policies should pay heirs something even when that happens. For instance, Nationwide’s long-term care rider offers a residual death advantage of 10% of the bottom policy amount, or $50,000 in the instance above, minus any policy loans.

A serious drawback is that you’ll have to pay a lump-sum premium of tens of hundreds of dollars up front to buy a hybrid policy. The more long-term care coverage and the greater the death profit you wish, the more you have to pony up. 

It’s essential to grasp that for a similar initial payment, different policies will pay dramatically different death advantages and monthly long-term care advantages. And you could not earn a market rate of return in your investment, representing a potentially large opportunity cost in comparison with what you possibly can get by investing the cash you’ll have put into the policy. 

Also, this sort of policy will not be suitable for somebody who doesn’t really want life insurance. And in case your policy doesn’t provide inflation protection on its long-term care advantages, it might be much less worthwhile by the point you employ it than it was while you purchased it. 

Annuities With Long-Term Care Advantages

Each fixed annuities and indexed annuities can include contracts that pay extra should you need long-term care. Normally, the annuity pays one monthly profit amount. But should you ever need long-term care, the annuity starts paying out a better monthly profit that’s a multiple of the premiums you’ve paid. “You set money in and it earns a set rate of interest, but when you have to draw on it for long-term care, they double the worth of the account,” says Sabo. “Subsequently, as an alternative of paying dollar for dollar for coverage, you might be paying $0.50 on the dollar.”

As with every style of insurance, you might be leveraging a comparatively small sum to purchase the potential of a much larger profit should you need it. Moreover, any long-term care advantages you receive from the annuity will probably be tax free. “The annuities are purchased with a lump-sum deposit, so that they don’t have an annual ongoing premium, but you might be in a position to get long-term care advantages based on the quantity of deposit and the way the contract is ready up,” says Sabo.

Example of a Long-Term Care Annuity

The next example, prepared by agent Jack Lenenberg, shows how a long-term care annuity can work. The policy is OneAmerica’s Annnuity Care^® II. It’s a single premium deferred annuity with long-term care gathered value. For a premium of $100,000, and with compound inflation protection of 5%, a policy purchased at age 65 for a female in Illinois could provide nearly $360,000 in long-term care advantages at age 66, nearly $418,000 at age 70, nearly $514,000 at age 75, about $634,000 at age 80 and nearly $786,000 at age 85. 

Someone who purchased a policy like this one can be leveraging $100,000 into as much as $786,000, which might provide hundreds of dollars per thirty days for several years if long-term care becomes crucial. If it doesn’t, the policy’s $100,000 money value would go to that person’s heirs. 

Pros and Cons of Annuities With Long-Term Care Advantages

Those that want the regular monthly income an annuity provides and protection against outliving their assets and other people who might profit from simplified health underwriting, should consider annuities with long-term care advantages. Long-term care annuities have simpler underwriting requirements than stand-alone long-term care or life insurance policies.

A downside to be mindful is that to purchase an annuity, you’ll must have a big sum up front. And when rates of interest are low, the annuity may not provide the most effective long-term care advantages.

The Bottom Line

For individuals who can secure a policy, long-term care insurance and other products that provide for long-term care expenses protect consumers’ desire to be certain that in the event that they do need such care, they will afford to receive it in the placement of their selecting—not in a potentially subpar Medicaid-accepting facility that may not offer the health outcomes or quality of life they desire. These products also allow people to guard their assets from the high costs of long-term care, avoid dependency, and maintain their living standards as they age.

None of the particular insurance products mentioned in this text are advisable by the writer or by Investopedia. They’re described for informational purposes to offer consumers an idea of some long-term care options available in today’s market.