5 Replies Latest reply on Apr 21, 2014 3:11 PM by jkom51

    life insurance w/long term care rider

    dzvayehi
      I've been looking into Lincoln Financial Group's hybrid life insurance linked to long term care. The idea is you pay a large lump sum (like $100k), and in return you are initially guaranteed $300K of long term care with a minimum duration of 5 years should you need it. The policy also has an inflation rider, so after 20 years, you have almost $600k of LTC benefits available. Supposedly you can also at any time back out of the policy and redeem your entire premium.

      Does anyone out there have any knowledge of these hybrid/linked policies and any thoughts about them? I am 60 years old and in very good health (today!)...
        • Re: life insurance w/long term care rider
          gracie11

          Just bought this last year.. I'd like to hear more comments about this !  Thanks

          • Re: life insurance w/long term care rider
            BoBraxton

            No (knowledge or experience). I understand thinking ahead about long-term care. Don't know if you are single or have a partner. At some point I ran into the "advice" (I know that is not allowed on MyRetirement) that if one has on hand a million dollars and more, long-term care can "self-insure." By the same token, I do not understand Life Insurance at this age (I am 69) unless there were some person(s) depending on my earnings for their life. No one is. My spouse gets a lot more income than I do (I am male). We have a common household budget.

            • Re: life insurance w/long term care rider
              jkom51

              IF - a big IF - you cannot qualify for regular LTCi, then a hybrid policy has some good/bad pts. Underwriting is somewhat looser; most people in their 60's simply do not qualify, under any circumstances, for reg LTCi but may qualify for a hybrid. Here is an excerpt from an April 2014 WSJournal article:

               

              Mistakes to Avoid When Shopping for Long-Term-Care Insurance

              How to Pick the Best the Policy for Your Needs and What to Avoid

              WSJournal April 13, 2014

              (Excerpted)

              1. 6. FAILING TO COMPARE HYBRIDS AND CONVENTIONAL POLICIES

               

              "These days, affluent buyers are flocking to hybrid or combo policies, which package long-term-care coverage with a life-insurance policy or an annuity. While sales of traditional policies fell 23% to 233,000 in 2012 from 303,000 in 2007, sales of hybrids have risen sharply, to 86,000 from 15,000, according to Limra, a nonprofit insurance and financial-services research organization.

               

              One attraction to hybrid policies: Customers can pay for the entire premium up front, and so effectively lock in a price for the benefits. With conventional policies, buyers theoretically lock in a steady, stable premium, but in reality, carriers have raised premiums on these policies in recent years. In addition, when hybrid policyholders die without using their long-term-care coverage, their heirs receive a death benefit.

               

              But there are downsides to hybrid policies. For one thing, they levy an added layer of fees—in the form of the mortality and administrative expenses carriers generally assess on life-insurance policies—on top of the morbidity charges in traditional long-term-care insurance policies, says Mr. Wolf.

               

              Also, when policyholders start to receive long-term-care benefits, they must deplete the death benefit before they can access any of the additional long-term-care coverage they purchased. Thus, there is no guarantee that their heirs will receive any life insurance, he says.

               

              While the benefits on both types of policies are tax-free, only individuals with traditional policies can deduct their premiums, says Mr. Kitces. And only traditional policies can qualify for the government-endorsed Long Term Care Partnership Program, which allows those who outlive their coverage to protect some of their assets and still qualify for Medicaid, says Mr. Wolf.

               

              If interest rates rise, Mr. Kitces says, consumers considering a hybrid are likely to come out ahead by keeping their money—and using the investment returns to purchase a traditional policy.

               

              Consider a 60-year-old man who puts $150,000 into a hybrid policy with a maximum death benefit of $159,500. If he eventually needs long-term-care, the policy will pay $5,200 a month for up to four years, a benefit that compounds at 5% a year, says Mr. Wolf.

               

              But if he instead puts his $150,000 into an investment with a 4% return, he will earn $6,000 a year—or enough to buy a four-year policy with a monthly benefit of about $11,000 that compounds at 5% a year, says Mr. Wolf. That's more than double the hybrid's monthly benefit and the man can always leave the $150,000 in principal to his heirs. The risk, of course, is that the investment returns might not cover his premiums." (Bolded emphasis is mine)

              • Re: life insurance w/long term care rider
                BoBraxton

                At some other place I remember reading that with $1 million in assets (not including real estate - house) one can "self-insure" for long-term care (without insurance). Our ages are 70 (her) and 69 (him).

                  • Re: life insurance w/long term care rider
                    jkom51

                    There is no "magic number" at which you can self-insure. It depends on your morbidity, mortality, asset liquidity and estate planning goals.

                     

                    You might be lucky and never have an accident, never have a serious illness, and die peacefully in bed in your sleep. Or perhaps not - no one can tell. The best one can do is evaluate risk, and in my experience most people are not trained to evaluate financial or physical risks very well.

                     

                    For BoBraxton's example, at ages 70 and 69, they are basically uninsurable for LTCi. The premiums would be so high it would make very little, if any, sense from a risk standpoint, unless buying a "bare bones" policy. So BB and spouse are essentially self-insured as is. The conventional wisdom of "buy LTC in your 60's" is now almost completely discredited by professional financial fiduciaries. The WSJ article I quoted worked out the numbers for today's marketplace, and found that buying early actually saved premium totals in the long run, because waiting until a more advanced age caused such a terrific mark-up in premiums; e.g., every year you wait the premium cost goes up 6%, and that's assuming you don't have any health problems in the interim! They found the "sweet spot" to be age 55 or younger.

                     

                    For those who do not have LTCi, you can only roughly figure out what you should reserve by knowing two things: (1) Medicare, on average, for TOTAL MEDICAL COSTS OVER LIFETIME, covers 51% of your healthcare costs, and (2) what is the cost of one year of full service nursing care in your local area (multiply that times whatever number of years you think you might live while being fully disabled - it's a guess, but figure 5-20 yrs depending on your disability. And remember, disability includes MENTAL disability, such as one of the 70 forms of dementia.). And of course, that nursing care is per person, not per couple. It is not at all unusual these days for one or both of a couple to need partial or full-service care as they age.