As technology changes, we are always looking for the latest and best upgrades so we are on the cutting edge. Just like the technology sector, the world of insurance policy design and implementation is constantly changing. One of the most recent designs to hit the market is buying something called a combined insurance policy. This kind of insurance policy is typically a cash value type life insurance policy combined with a long-term care rider. Is this a good idea to combine both into one policy, or should you be looking at two separate policies to cover these risk management needs within your financial plan?
Families have always bought life insurance (term or permanent insurance) over the years to cover for the short and long term needs in the event of a premature death of one of the partners our spouses in a family unit. The amount of insurance a family needs has been long debated, but it's best to use both the human life value and needs based analysis to determine an appropriate amount of insurance to cover those risks. Depending on your cash flow, tax brackets, and overall needs, you can determine the type of insurance (or combination of types) and amount of insurance you should be buying. Remember, that only you can decide how much life insurance will give you peace of mind when you go to sleep.
Long-term-care insurance helps cover the cost of in-home care or nursing homes and assisted-living facilities. While sales of traditional policies declined during the recession - to 235,000 in 2010 from 303,000 in 2007 - sales of policies that package long-term-care with life insurance rose sharply, to 26,000 in 2010 from 15,000 in 2007, according to Limra, a nonprofit insurance and financial-services research organization. (source: www.wsj.com)
Combined policies pair long-term-care coverage with either life insurance or in some cases it can be an annuity. In the event the policyholder needs long-term care, the insurer typically pays funds tax-free from the linked annuity or - in the case of a policy packaged with a life-insurance contract - prepays some or all of the death benefit. Many of these policies provide some additional long-term-care coverage as well.
One reason to consider the use of a combined policy: They allow those who don't use their long-term-care coverage to recoup money spent on premiums. This can be an important factor because many people we talk to can often see insurance as a waste of money. Combined policies can also offer policyholders a way to hedge against the premium increases that have plagued holders of conventional long-term-care policies. For those in really poor health, it is possible that these policies will be easier to obtain.
However, these types of policies can also have their drawbacks as well. For those who tap long-term-care benefits, it will reduce or eliminate the payouts available under a linked annuity or life-insurance policy. This is why you should spend some time analyzing how much coverage you need and the best way to purchase your overall risk management needs.
Other downsides include the fact that couples typically can't share their total long-term-care benefits. Nor can businesses claim tax deductions for their owners' premium payments. You also really need to examine what exactly is covered in the long-term care policy as individually held policies often have a much more liberal and extensive set of coverage's. Inside of the long-term care riders, pay close attention to see if there is inflation protection to protect against the rising costs of long-term care.
Once you reach the age of 45 or 50, this should be a discussion you get into while you are still younger and generally healthier. Far too often, I see people wait until their 60's and sometimes their 70's to address these issues when it is either too expensive or they are uninsurable.
Call us to get a FREE review on whether a combined policy makes sense for you.
Phone 1.800.355.9318 or 770.777.0427
Written by:
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc
oXYGen Financial, Inc. co-CEO Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice and Smart Money Moves to the X and Y Generation.
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