Dramatic increases in the cost of long-term care (LTC) insurance have your clients struggling to balance the expense of coverage against the risk of not insuring against the potentially enormous cost of long-term care. Protection against the costs of long-term care is so critical that you cannot advise against it. So, what do you tell a client who is unwilling or unable to purchase LTC insurance? You can help these clients avoid overpaying for long-term care by using a life insurance policy to provide coverage in the event that long-term care is needed, while simultaneously preserving your client’s estate if the need for care does not arise.
The Risk of Overpaying on LTC Insurance
The primary risk to your clients in purchasing LTC insurance is that they will not use it. There is no surrender value, so your clients could pay on a policy for years and lose the entire investment if they are lucky enough to never require long-term health care. Because most insurance companies will approve coverage only for relatively healthy individuals, this risk can be significant.
Further, most policies are capped at a three-year period of coverage because longer policies have become too risky for the insurance companies. If your client does end up using the coverage, he encounters the additional risk of living beyond the three-year coverage term. In that case, an alternative payment method would be required, so your clients might wonder why they should bother with LTC insurance at all.
For a couple in their early 60s, LTC insurance costs roughly $3,500 per year for coverage that pays an average $150 daily benefit for three years. This expense often makes it difficult for many retirees to purchase LTC insurance.
The problem is that you cannot advise your clients against purchasing some type of LTC coverage—the costs of long-term care are rising just as rapidly as the associated insurance costs. A hybrid LTC-life insurance policy might provide the solution that your clients need.
Dual Protective Benefits of Life Insurance
A type of hybrid life insurance policy can be an attractive option for clients who want to plan for long-term care needs while protecting against the risk that they’ll never need coverage. A hybrid life insurance policy is a policy that provides a traditional death benefit to your client’s beneficiaries but also allows some or all of this death benefit to be withdrawn to pay for long-term care expenses.