Sales of long-term care insurance are stalled. Only about 2% of the target market buy the policies. The latest attempt to make long-term care health insurance attractive is to combine it with life insurance, making both products more attractive.
Here’s the pitch in these new policies. The long-term care insurance is there if you ever need it. But if you never qualify for long-term care payments or use a small amount of the coverage, your premiums aren’t wasted. Your heirs get a death benefit based on the premiums you paid. The new policy apparently was pioneered by First Penn-Pacific Life Insurance with its MoneyGuard policy. Golden Rule and Lincoln Benefit Life also offer versions.
In the standard MoneyGuard policy, a non-smoking 65-year-old male makes a single $50,000 payment on the policy. This entitles him to up to $97,500 in long-term care benefits (at a rate of $133 per day of care) if they are needed, or $97,500 in life insurance for his beneficiaries if long-term care is not needed.
So if he doesn’t use up to $97,500 in long-term care benefits, his heirs get the difference between $97,500 and the amount used.
Let’s look at the policies closely.
The $50,000 initial outlay is very expensive when based on the value of the coverage, whether it is the long-term care coverage or the life benefit. Compare the $50,000 single premium with a $2,000 annual premium for long-term care coverage. That’s 25 years of premiums in one lump sum. If you want inflation protection on your daily long-term care reimbursement, you have to pay extra for that. You definitely are paying a lot for the possibility that your heirs will get up to $97,500 if you don’t need long-term care.
Another disadvantage is that you have to be very healthy to qualify for both types of coverage under these policies. If you aren’t, then you have to pay more for the policies, or aren’t allowed to purchase them. If you meet the health standards for these combined policies, you probably qualify for low life insurance rates.
Compare the policies with the alternatives. If you buy separate long-term care and life insurance, your heirs definitely will receive the benefits under the life policy. Under the combined policies, if you use the long-term care benefits, your heirs don’t get any benefits. Under a separate life policy, the coverage will cost less than under the combined policies, and you will be able to put the life insurance in a trust or give it to your heirs so that it will avoid estate taxes. The long-term care insurance might be cheaper when purchased separately, depending on how long you pay premiums under the policy.
You also should consider that under the combined policies, you pay all the premiums in one lump sum. By purchasing separate policies, you pay annual premiums and get to keep the earnings on the rest of your money until premiums are due.
A separate long-term care policy probably gives you more options for customizing the coverage to fit your needs. In past issues, I’ve told you how to adjust the policy terms so that you get the coverage you are likely to need at a reasonable cost. The combined policies probably won’t offer all the options you’ll have under a separate long-term care policy.
If you can afford separate policies, you should buy them rather than a combined policy. A hybrid policy might be a good idea for those who cannot afford both. But, as I’ve advised in the past, if buying long-term care insurance would crimp your standard of living you probably should forego the coverage and count on your assets and Medicaid paying any long-term care expenses you incur. If your goal is to leave something for your heirs, life insurance for most people is much cheaper than long-term care insurance. Your heirs would be better off, and your standard of living would be higher, if you bought a life policy for their benefit and used your assets and Medicaid to pay for long-term care. Then your heirs would inherit the life insurance benefits.