More than 60% of those who purchase long-term care policies want to avoid becoming a burden on their family, while more than 45% of purchasers had a goal of protecting their assets. Long-term care insurance is becoming an integral part of a family’s financial plan. However, with more consumers keeping their long-term care policies in force, combined with the prolonged low interest rates, insurance companies are increasing their premiums. Logically, the rate increases pushed prospective customers to explore other options. In response, insurance companies began offering hybrid policies that combine the death benefit of a life insurance policy with a guaranteed, fixed monthly benefit for long-term care services.
There are some key differences between a traditional long-term care policy and a hybrid policy. Traditional long-term care coverage generally increases to match the rising cost of long-term care services. There is a level of security in knowing you are covered in the event of a prolonged condition that requires daily care for activities like eating, bathing or dressing. However, if your health holds out until you die, your only benefit was the peace of mind knowing you were insured. Additionally, the premium is not guaranteed; therefore, the insurer can raise prices as they need, which we’ve seen happen.
A hybrid policy is basically permanent life insurance with a long-term care rider. You pay a fixed, guaranteed premium over the life of the policy, and your beneficiaries receive a death benefit when you die. However, if you need long-term care coverage, your death benefit is advanced to you as a predetermined monthly benefit, regardless of your actual costs. The money used reduces the balance in your life insurance plan. Should you die, any amount leftover is paid as life insurance to your beneficiaries.
If you are considering a hybrid policy, there are several factors to keep in mind. You need to consider the claims-paying ability of the insurer. There are several companies that provide life insurance well, but there are a limited number of companies that provide solid long-term care policies. However, there are only a few that do both effectively. You need to be careful the long-term care rider matches the risk you want to insure against. Some insurers will offer a “chronic illness accelerated benefit,” but the qualifications are very specific, and are typically more restrictive than a long-term care or hybrid policy.
You also need to consider the insurer’s resources to handle long-term care claims and the nature of how claims are processed. Most policies operate with a reimbursement model, which means you will have to use and pay for professional services then submit the invoices to the insurance company for reimbursement. Alternatively, some policies pay claims based on an indemnity model, which allows you to use your benefit as you wish, for example, to pay a family member for the care they provide. While this certainly provides more flexibility, it can come at a price.
The type of policy that will work for your situation depends on your overall financial plan, how much you are willing to self-insure, and of course, how much you are willing to spend for coverage.
At Henssler Financial we believe you should Live Ready, and that includes finding the best insurance policy for your financial situation. If you have questions regarding your insurance coverage, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
