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Combination life insurance merges long-term care with your policy

Combination life insurance has become an increasingly popular way to provide long-term care protection while offering life insurance. It’s also an alternative to long-term care insurance.

The American Association of Long-Term Care Insurance said that more than 350,000 Americans purchased long-term care coverage in 2018. The vast majority (84%) of these purchases were for hybrid or combination life insurance. Only 16% were traditional long-term care policies. 

Combination life insurance made up 27% of the total individual life insurance market in 2018, according to LIMRA.

 

How much does long-term care cost? 

It’s clear to see why these policies have gained popularity in recent years. Most of it comes down to long-term care costs. Long-term care is far from affordable for most Americans. 

Fifty-three percent of Americans are worried about how they will afford long-term care, according to recent LIMRA data. Combination life insurance can help to ease those concerns. 

You can expect to pay anywhere from $3,628 a month for care in an assisted living facility to $7,698 a month for a private room in a nursing home. That money doesn’t take into account the cost of home care. More than half of long-term care dollars begin with home care. 

Here’s a look at the percentage of long-term care claims when people first need to pay for long-term care

  • Home care -- 52%
  • Assisted living -- 25%
  • Nursing homes -- 23%

The final long-term care claims still trend toward home care, but not as much as at the beginning of long-term care. 

  • Home care -- 43%
  • Nursing homes -- 30%
  • Assisted living -- 27%

So, people exploring future long-term care coverage shouldn’t just think of it as something that only pays for nursing home care. 

You may also be surprised by when long-term care claims usually happen. Nearly one-third of long-term claims occur for people age of 80 or younger, according to the American Association for Long-Term Care Insurance.

 

What's a combination insurance policy?

Combination life insurance, or a hybrid policy, provides long-term care benefits or chronic illness coverage within a life insurance policy. A combination life insurance policy simply adds a long-term care rider to a permanent life insurance plan. 

Jason Fisher, a nationally-recognized insurance agent and CEO of BestLifeRates.org, says insurers have created combination policies to provide consumers with a more comprehensive solution for their insurance needs.

"Having several benefits tied together within a life insurance policy is a step life insurance companies have made to offer a full range of end-of-life type of benefits all in one place, for one price, in one sweet little package," Fisher says. "In addition, the benefits can be reliant on one another, allowing the insured and the beneficiaries much-needed efficiency and effectiveness in care, regardless of when it takes place."

You pay a premium either in a lump sum or over several years. The long-term care rider is there to help if you need. However, if you don’t tap into the long-term care savings, your policy will still pay out a death benefit to your beneficiaries. That’s similar to other policies, such as term, universal and whole life insurance.

If you need long-term care, your policy benefits will kick in to cover these costs. Your insurer will accelerate your policy's death benefit and you can use these funds to pay for long-term care -- tax-free.

To qualify for this benefit, your doctor must diagnose you with cognitive impairment or deem you incapable of performing at least two of the six activities of daily living, which include:

  • Bathing
  • Continence (the ability to control bladder and bowel movements)
  • Getting dressed
  • Eating
  • Toileting (getting to and from the toilet)
  • Transferring (moving to and from a bed or a chair)

Once you're approved for long-term care benefits, the amount you receive will be a percentage of your overall death benefit, based on what's in your insurance rider. For example, if you have a $200,000 life insurance policy and a rider that designates 3% a month for long-term care costs, your insurance company will pay out $6,000 a month for your long-term care expenses.

Whatever amount is left over will be used to pay a death benefit to your beneficiaries.

 

What types of life insurance policies offer combination insurance?

Combination life insurance is available only in a permanent life insurance policy. That means you can add this rider if you have a whole or universal life policy, but not term life insurance.

Term life insurance covers policyholders for a period -- often 10, 20 or 30 years. Permanent life insurance, on the other hand, is exactly how it sounds. It’s permanent, as long as you pay your premiums. 

So, whether you die 10 years or 50 years after buying a permanent life insurance policy, your loved ones will receive a death benefit. 

 

How does combination insurance compare to long-term care insurance?

Combination life insurance differs from long-term care insurance. The hybrid policy lets you get both in one comprehensive policy rather than having to purchase two different forms of insurance. 

Plus, your loved ones will get to keep what you didn’t spend for long-term care coverage with a combination policy. They wouldn’t get a death benefit if you have a separate long-care insurance plan.

These policies also may differ in terms of the costs. 

A 55-year-old woman will pay an average of:

That same person would pay on average for the same coverage:

  • More than $3,000 at 60 years old. 

In comparison, the American Association of Long-Term Care Insurance said the average cost of a single-premium combination life insurance policy is $75,000. In that case, you’d pay that amount once and have long-term care as part of your life insurance policy. 

So, you’d likely pay more for a combination life insurance policy. That said, your loved ones will get to keep what’s left over when you die. 

 

Positives and negatives of combination life insurance

Similar to anything to do with other types of insurance, combination life insurance isn’t right for everyone. Here are four positives and negatives: 

Positives

  • You don’t face large rate hikes that can happen with long-term care insurance. 
  • You combine life insurance and long-term care insurance into one policy. 
  • You get life insurance protection. 
  • Survivors get money not spent on long-term care. 

 

Negatives

  • Not available with term life insurance. 
  • Lower payout than long-term care insurance. 
  • Can be more costly than long-term care insurance. 
  • Paying with one lump sum, which will give you the cheapest rate, is beyond many people’s budgets. 

"A hybrid policy is ideal when it's affordable and part of a comprehensive plan. Not everyone would see the full benefits of this type of policy, and, quite frankly, not everyone has the level of assets needed for the protections it offers," Fisher says. "Combination products are great when they solve issues within an estate, like asset preservation or transitional assets which aren't liquid."

 

Is combination life insurance right for you? 

Chris Acker of CB Acker Associates Insurance Services says combination life insurance is best suited for certain types of consumers.

"The combo approach is a good idea when there are underwriting issues involved. If someone is a less than an ideal long-term care insurance policy candidate, then the approach would be to shift to the life insurance model. This is a bad idea when the cost is an issue and if the consumer is older," Acker says.

Acker says combination policies make the most sense for someone who doesn’t think they’ll need long-term care but wants to have it for protection. At that point, unlike a regular long-term care insurance policy, you’ll still have life insurance if you don’t need to use the long-term care coverage. 

"It's also best suited for people who wish to fully fund a life insurance policy and cease premium payments at some point. These folks need to have the resources to be able to commit cash flow into the policy over a shorter duration," Acker adds.

Acker says consumers should consider whether they need long-term care benefits in the first place. Work with a financial planner on personal budgeting and financial modeling to figure out whether you need long-term care funding. 

First, explore how much long-term care may cost. Then, decide how much you can direct toward this care.

"Coordinate the long-term care funding with your estate planning, meaning decide how much money you'd like to leave your children. If you wish to leave more money to them at death, then fund more of the long-term care expenses with long-term care and life insurance,” Acker says. 

If you're shopping around for a hybrid policy, Fisher suggests sticking with name-brand carriers that have an excellent track record. He also urges consumers to work with an educated advisor before signing up for a policy.

"Expect a long buying process and a very comprehensive underwriting regimen," he says. "If you're seriously considering this type of product, it should be a part of a greater plan, built in with the mindset it's an expense you're happy to take on, but hopefully never use."

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