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Long-term care combined with life insurance solves problems

Updated: September 24, 2012 6:25AM

I have often written about the importance of having long-term care insurance — policies that pay for home care or assisted living or nursing home care — in case you are unable to independently manage the basic activities of daily living.

That kind of care is expensive — as much as $8,000 per month in a private nursing facility or from home health-care aides. Without insurance, you could quickly go through most of your savings and wind up dependent on state-funded care, which is typically given only in Medicaid nursing homes. And at the rate states are running out of money, their facilities certainly won’t be able to offer the care you want.

Buying long-term care insurance gives you the choice of where you will receive care and how to schedule that care. It is a concept that makes perfect sense — except for two very reasonable objections:

† What if I don’t use it?

When asked, I always respond that I hope you never have to use your LTC insurance, that you live a long and healthy life and die in your sleep at 95. But what are the odds? Once you’re over 65, the odds are 10 times as great that you’ll need some form of long-term assistance than that your home will burn down. But you still buy homeowners insurance. And also you should have long-term care insurance.

† What if my annual premiums rise and I can’t afford my policy in later years?

That’s a reasonable worry. Many companies that sold policies a decade or two ago found that they had underpriced the premiums. Some insurers have stopped issuing LTC insurance policies (although by law they must support existing policies), or they have raised premiums for all existing policyholders.

One way to avoid that problem is to buy a “10-pay” long-term care insurance policy. If you do that in your high-earning years, you’ll be fully paid up with no chance of rising premiums. But that involves paying a lot of money up-front for a policy you may never use.

Combined life, long-term care policies

Several large insurers recognized this dilemma — and have created policies that combine the benefits of life insurance and long-term care insurance. Although each policy has its own features, basically the idea is that if you don’t use the money in the policy for long-term care costs, your heirs will receive a death benefit so your money isn’t wasted.

These policies are funded by a large, single-premium deposit into a life insurance policy. Typically the money comes from savings that you don’t plan to use in your lifetime, but would otherwise leave to your heirs (unless you needed to spend it on long-term care). If some of the death benefit is used for care, the balance goes to your heirs.

Buying one of these combo policies gives you leverage to get more long-term care coverage than simply self-insuring by keeping the money in savings.

Here’s what I mean by leverage:

† A 55-year-old woman, investing $100,000, could get $240,000 in death

LTC benefits, or $9,600 a month for long-term care.

† At 65, that $100,000 deposit would create $180,000 in death benefits, and a $7,200

month LTC benefit.

The withdrawal for care costs is limited to 4 percent of the death benefit each month — with an optional 3 percent or 5 percent inflation increase. That gives you a lot more leverage (money available to pay for care) than you could have received if you simply saved the $100,000 in case you needed care. Some policies, such as the OneAmerica Asset-Care plan, offer a lifetime LTC option for an additional premium.

Remember, any money from the death benefit that you don’t spend on care goes to your heirs!

OneAmerica also offers a combination annuity and LTC policy, called Annuity Care. You don’t get the life insurance — but you might want to do an exchange of an existing annuity (including accumulated gains) into one of these combo LTC

annuity policies. Then, under recent tax law, if you need to access the money for custodial care, it will all come out tax-free (unlike most annuity withdrawals).

Costs and benefits and caveats

First of all, you have to have the assets to reposition into one of these policies. But once you make the purchase, you never have to worry about rising monthly premiums. You’re locked in.

There are costs with every policy — “mortality costs” to cover the death benefit promise and costs to offer the care.

But you know those costs upfront, because they are baked into the promise of the death benefit and the care benefit, which won’t change except for the inflation increases on the benefits.

For sure, you (or your heirs) get something back from the policy — either the care benefits, or the death benefits — or whatever is left over after you used some of the care benefits.

Like traditional life or LTC insurance policies, there are underwriting standards you must meet to purchase these policies. So the time to consider it is when you’re healthy. Also, the insurance company has to certify your need for care before it will release the benefits for care.

How to buy

There are so many variables in these policies that you should use an expert agent who can compare them and help you find the product that is best for you. The three major insurers listed below all offer variations on these combination policies, which are sold through independent agents.

† OneAmerica,, offers its Asset-Care product, using either whole life insurance or through an annuity.

† Lincoln National, www.Lincoln, offers its Moneyguard product using a variable universal life policy.

† Genworth,, offers its Total Living Coverage product, which has some variation in benefits and premiums based on interest rates.

Nationally known LTC insurance expert Phyllis Shelton,, says: “These combination policies may be an excellent solution for people who have saved for a long-term care need, but would prefer a larger amount of coverage, while still leaving assets to their heirs if the coverage is not needed.”

You can find more information about long-term care insurance at Shelton’s website — along with her excellent book on the subject.

Growing older is better than the alternative. But growing older and having the care you need is worth the investment. And that’s The Savage Truth.

Terry Savage is a registered investment adviser.

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