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.

Life combination products, according to life-insurance industry research group LIMRA, provide people with life insurance coverage with long-term care or chronic illness coverage. Total new premium for individual life combination products rose 22% to $4.3 billion in 2021 compared with 2020, according to a September 2022 report from LIMRA. The group said almost 559,000 policies sold in 2021.

 

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 – which is expensive. Insurance company Genworth says the 2021 monthly costs of home health aides is $5,148, adult day health care is $1,690 and an assisted living facility is $4,500.

LIMRA says one in four people are likely to consider a life combination product. The top reasons:

• It allows people to choose whether they receive care at home or in a facility.
• It covers temporary illnesses and conditions.
• Benefits can be used to pay for home modifications or equipment that allows people to stay in their homes.
• It covers adult day care.

 

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. 

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 may differ in terms of the costs. 

• A single 55-year-old woman could pay $1,500 a year for long-term care insurance with a $165,000 policy benefit, according to the American Association of Long-Term Care Insurance. 
• A linked-benefit policy – a hybrid life and long-term care insurance – would cost the same women about $4,500 a year for a long-term care benefit of $167,000 and a minimum death benefit of $167,000, according to the AALTCI.

But the AALTCI and others note that these types of products vary significantly and that it’s next to  impossible to provide direct comparison. 

Barbara A. Pietrangelo, chair at Life Happens, a life-insurance industry research group, said there are many factors that go into the pricing – for long-term care, there’s age, health, lifestyle habits, the type of policy, and more. To get the best sense of the price ranges for you and your situation, please consult an insurance agent or financial advisor who can help give you a better sense of what the cost might be, and find a policy that is right for you.

“Similar to long-term care policies, it’s hard to give a price average for combination policies,” she says. “However, in general, combination policies cost a bit more than individual policies. But remember – the cost of a combination policy is locked in when you buy it, so there are no cost increases, making combination policies a more affordable option in the long run.

Pietrangelo recommends consulting an insurance agent or financial advisor who can help give you a better sense of the cost and to find a policy that is right for you

Is combination life insurance right for you? 

Life Happens’ Pietrangelo says the best benefit of combination life insurance is that someone will benefit from the policy, whether it’s you or your loved ones. Reversely, she says, long-term care has a use-it-or-lose-it policy, so you could hypothetically be paying thousands of dollars but not get anything from it.

“So, the benefit of combination life insurance is just that – it is a guarantee that someone will benefit from it,” she says.

But remember, she says, you will need to qualify for a combination policy and there’s an added cost for choosing combination life insurance as opposed to long-term care policies.

So, how does a person know if a combination policy is right for them?

“If you’re in a situation where you can afford a combination policy, then I would urge you to consider the policy because combination policies are for everyone, particularly anyone who needs care in the future — which is a large percentage of the population,” Pietrangelo says. “Purchasing a combination policy will allow you to have more options later in life. As always, talk to your financial provider or insurance professional – they can help you analyze your needs.”

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