Combination life & long-term care insurance: How it works

There may be several reasons you haven’t explored long-term care insurance, not the least of which is how complicated the coverage may seem. And then, what if you buy the insurance and don’t end up needing it?

That’s where combination (also known as hybrid) protection comes in. It combines your potential need for long-term care insurance with your desire to preserve the money you spend on it.

While you can’t predict the future, you can help protect yourself and those you love from multiple risks with a combination life and long-term care product. The long-term care insurance component can help with the costs of care and give your family choices about how and where your care is provided, while the life insurance offers a sense of security for your future.

The Thrivent 2021 Extended Care Planning Survey revealed that almost six out of 10 respondents haven’t talked to anyone about creating a long-term care plan for themselves or others.¹

However, there is growing interest in a combination life/LTC product, especially among Americans who have experience providing care to a family member. More than one-third of respondents (36%) to a 2021 LIMRA survey who have dealt with the stress of being a caregiver said they were very likely to consider buying a hybrid life-LTC product.² LIMRA is a global life insurance research and advocacy organization.

If you are caring for an aging parent or other loved one while also raising a family, you are in the sandwich generation. You may find our resources helpful as you juggle your responsibilities while also trying to plan your future.

Read more: 4 things to know before buying long-term care insurance.

Traditional long-term care insurance may feel like a “use it or lose it” purchase. If it turns out you don’t need to use the coverage in the future, you might consider those premium payments wasted.

What hybrid means in insurance is that the product is a combination of two different types of insurance. There is both long-term care insurance and life insurance. You pay premiums either as one lump sum or over a period of years.

If you don’t use the long-term care benefits, your beneficiaries receive a death benefit. If you’re wondering if you can add long-term care to life insurance you already own, the answer is no, but you may be able to exchange existing life insurance policies when you purchase a combination life/LTC policy.

Learn more about how long-term care insurance works, including how much coverage you may need and how to apply.

The main advantage of hybrid policies is the guarantee that you will get some return on your premium dollars—either as long-term care benefits when you need them or life insurance benefits for loved ones at your death.

Another guarantee with a policy like this is that premiums will not increase. That may not be the case with traditional long-term care insurance. Also, you may find combination life and LTC policies with no elimination period for home care or adult day care, which means you won’t need to wait a set period of time before benefits begin. There may be an elimination period of at least a few months if residential care is needed.

The type of life insurance combined with long-term care insurance is typically permanent life insurance. That means cash value may accumulate at a rate guaranteed by the life insurance company, so you don’t need to count on market performance.

Every financial decision you make comes with its potential downside. Combination life and long-term care policies are no different. Buying an insurance policy that combines long-term care with life insurance will be more expensive than just buying life insurance.

And, if you do need to use the long-term care benefits during your lifetime, the eventual death benefit will be reduced or even eliminated. Therefore, you may want to be sure that your need for life insurance does not rely on your hybrid policy.

If you need long-term care down the road, qualifying expenses will be paid tax-free. If you do not need to use the long-term care benefits of your hybrid life/LTC policy, eventual death benefits will be tax free to your beneficiaries.

Depending on your age and income, you may be able to take a tax deduction on a portion of long-term care insurance premiums from your federal income.

As you consider your need for this blend of risk protection that combines long-term care and life insurance, think about:

• Your age and health. As with most types of insurance, the older you are when you purchase long-term care insurance, the more it may cost. It’s never too early to weigh your need for coverage with your current health status.

• Your available assets to pay for care now and in the future. Your financial advisor can help you decide whether paying to protect yourself from the risk of needing long-term care may be a sound option for your family.

• Your goals for supporting loved ones. Is it important to you to provide for your family with a death benefit from life insurance at your death?

• Your need for life insurance. Over your lifetime, your need for the protection life insurance can provide may change. Including it with hybrid long-term care insurance may be an option is that suits your goals.

Having a strategy for your potential care needs is a solid first step. Allow yourself the time you need to learn about options and consider your own circumstances. To get started, ask yourself these questions:

• Who will you count on to make health care decisions if you can’t? Have you identified them in essential estate planning documents, such as power of attorney or healthcare directive?
  
• Where do you want to be cared for, at home or in a care facility? Care options include home care, assisted living, adult day care and nursing homes. If you want to stay at home, will modifications be required?
  
• How will you pay for long-term care? Have you considered the potential expenses when saving for retirement? Should long-term care insurance be part of your overall financial plan?

Read more: Long-term care: Your questions answered.

If you’re asking yourself, “Should I get hybrid long-term care insurance?” a financial advisor can help you make the decision that’s best for you.