Thursday, October 11, 2012

Long Term Care and Life Insurance

Recently the Wall Street Journal had a "Family Value" item on policies combining life and long term care insurance. Often referred to as "hybrids," the premise is that one can avoid future rate increases, and guarantee that someone gets some money out of the insurance company.

The article bothered me, and I couldn't quite put my finger on why that was the case, so I turned to our on-call Long Term Care insurance (LTCi) guru Herman Bruns:

The writer is somewhat confused in her terminology: when the term "hybrid" was coined for LTCi plans, it was more for permanent life plans that would triple, quadruple, etc the death benefit if you ever needed LTC, and give you all your money back if you changed your mind. She does not appear to refer to these at all.

Eventually, some carriers got smart and took the accelerated death benefit feature that has long been around, and tweaked it into a LTC rider that allowed you to accelerate the death benefit if a long term care need developed. This seems to be more what she is referring to. The insurance company is just potentially paying out a death claim early at a predetermined payment schedule.

The latter choice (with the rider), which I do *not* call a hybrid, still gives you a reasonably cost-effective permanent life insurance opposed to an overpriced life policy in the case of a true hybrid. The hybrids want the big up front, single premium payment, whereas the life plans with the riders can be paid just like any other life plan: as you go.

The general problem with life insurance policies as a LTC solution is that you have to buy two polices to protect a couple; that is, there is no such thing as a "shared" life plan. I have seen no second to die plans that come with LTC riders so far. You have to qualify for the life insurance medically, so sometimes you can get LTC and not life, and vice versa.

Bottom line is that there is a place for all these products.

Thanks, Herman!
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