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Have Your Cake and Eat it Too, Sort Of

Insurance Long Term Care

Most of us don’t like to think about the possibility that we may one day need long term care. And while the costs of long term care insurance can be discouraging, they pale in comparison to the truly expensive costs of long term care itself.

So why don’t more of us pay to transfer that potential risk to the insurance company? It’s because the big question on everyone’s mind is: “What if I stay healthy and never need the care? I’ll have flushed all those premiums!” Right? A perfectly valid concern, although it’s funny that we rarely feel the same way about our “wasted” auto or homeowners premiums. Everybody loves insurance; it’s just those doggone premiums that we hate.

The insurance industry recognized this concern and got creative about long term care solutions. Today several companies offer hybrid arrangements that make your money do double-duty. Essentially, these are long term care benefits built onto the chassis of either a permanent life insurance policy or an annuity.

While these policies aren’t right for everybody, they can let you have your cake and eat it too, sort of.

Here’s how it works. Some people have saved up substantial “rainy day” reserves and that’s what they’d tap first if they needed care. Very often those funds are kept quite liquid and aren’t earning much of a return. By shifting some of those assets to pay a one-time premium for a hybrid policy, you may earn a higher return while having long term care coverage at the same time.

And here’s the answer to our big concern….If you end up needing long-term care, you will collect from the policy. On the other hand, if you don’t need the care (or only need limited care), then when you pass away your designated beneficiaries will inherit the policy’s death benefit. No more worries about wasted money because somebody beside the insurance company is going to benefit from your dollars. And to top it off, 2010 changes to the federal tax code now allow tax-free long term care payouts from an annuity, so that’s icing on the cake.

A hybrid arrangement like this might be a good solution for someone who:

  • Has avoided long term care insurance because of the possibility of “wasting” premiums
  • Can qualify medically for the coverage
  • Has significant assets (savings, CDs, annuities, etc.) that they don’t need to support their lifestyle
  • Has a permanent life insurance policy with substantial cash value that might be transferred (tax-free) into the new hybrid arrangement

If you’ve said “no” to traditional long term care insurance, talk with a knowledgeable professional to see if a hybrid alternative might be right for you.