Affordable Alternative for Long Term Care Insurance

As our nation’s population ages, many people are shopping for long term care insurance quotes, only to encounter pricey policies and increasingly stringent underwriting standards. To satisfy the growing demand for affordable long term care insurance, many insurers including several prominent national companies are now marketing a product called combo life policies – an affordable alternative for long term care insurance.

Combo policies are whole (aka permanent) life insurance or annuities packaged with a rider that provides accelerated death benefits. Sometimes called living benefits, these riders can provide cash payouts while you’re alive should you suffer a chronic or terminal illness. The conditions and restrictions for the cash payouts will vary depending on the insurer. Some combo policies let you use your accelerated benefit for any reason legitimately associated with a chronic illness, such as purchasing a wheelchair or hiring a family member to take care of you in your home. Others require a diagnosis of terminal illness before you can take advantage of the accelerated benefit.

Combo policies with accelerate long term benefits differ from traditional long term care insurance in that the total benefit is generally limited to the actual amount of the death benefit provided by the life insurance policy. As such, unless you have a high value life insurance policy, a prolonged illness could rapidly deplete your death benefits. On the other hand, if you never use the long term benefit, your beneficiaries will receive the full death benefit you intended for them and you will have saved thousands of dollars you’d have otherwise spent on a traditional long term care policy.

Another difference worth noting about combo policies with accelerated long term benefits is how they compare to viatical settlements. If you are terminally ill, a viatical settlement lets you sell your permanent life insurance policy to a third party, who becomes the named beneficiary. You can typically expect to receive 55 to 80% of your policy’s death benefit value. You get instant cash to pay your medical costs, but your original intended beneficiaries get nothing when you die.

A few other things worth noting when considering alternative for long term care insurance:

  • You may also be able to purchase an accelerated benefit rider to an existing life insurance policy or annuities.
  • These riders are not intended to take the place of a traditional long term insurance policy or health insurance coverage.
  • Collecting accelerated benefits may incur a tax liability and you should consult the IRS or your tax professional to understand the ramifications of drawing down cash from your policy rider.
  • Collecting accelerated benefits, which can be considered income, could also affect your Medicare eligibility.
  • The combo policies are not currently available in every state, and where available, like all insurance policies they are regulated by each state’s own insurance commission.
  • If you decide to get quotes of combo life insurance with accelerated long term care benefits, look for established insurers with high A.M. Best ratings.  

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