Retirement & Financial Planning Report

On average, people who buy long-term care (LTC) insurance pay more than $2,000 per year. A married couple might pay twice that amount. Some people are reluctant to pay that much, year after year. If they never need long-term care, they’ll get no benefit from spending those thousands of dollars.

One solution is to buy a “combination” product, such as:

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* Life insurance with an LTC rider. The policy will pay while you’re alive if you need care. If you need little or no LTC during your lifetime, your beneficiaries will get an insurance payout at your death.

* Deferred annuity with an LTC rider. Like all deferred annuities, investment earnings can build up inside the policy, without being subject to income tax. If you need care, you may get a tax-free benefit. If you don’t need care, you can tap the annuity for cash flow or pass on the annuity’s value to a beneficiary at your death. (Annuity payouts probably will be subject to income tax.)

Most of these combination products are “single premium,” meaning that you buy them with one upfront payment that might be $25,000 or more. Therefore, they may be a good choice if you (or your parents) are currently holding substantial amounts in low-yielding bank accounts.

Careful buyers of LTC insurance also will check exactly what is covered. For example, not all policies cover assisted living facilities. You should review your policy, especially if it’s a home-health-care-only policy, a nursing-home-only policy, or any policy issued before 1990. If assisted living coverage isn’t included, ask the insurer if that coverage can be added, and, if so, how and at what cost.

Many residents in assisted living facilities, especially those with cognitive problems, may not need enough care to qualify for benefits under most LTC insurance policies. Seniors and their children might make the decision to move to assisted living, thinking that their LTC insurance will pay for the care, only to find out their claim is denied. Therefore, even if your parents have this coverage you should make sure that they have the ability to pay for expenses out-of-pocket, not only during the policy’s waiting period but also during any claims denial and appeal process.

combination” product, such as:

* Life insurance with an LTC rider. The policy will pay while you’re alive if you need care. If you need little or no LTC during your lifetime, your beneficiaries will get an insurance payout at your death.

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* Deferred annuity with an LTC rider. Like all deferred annuities, investment earnings can build up inside the policy, without being subject to income tax. If you need care, you may get a tax-free benefit. If you don’t need care, you can tap the annuity for cash flow or pass on the annuity’s value to a beneficiary at your death. (Annuity payouts probably will be subject to income tax.)

Most of these combination products are “single premium,” meaning that you buy them with one upfront payment that might be $25,000 or more. Therefore, they may be a good choice if you (or your parents) are currently holding substantial amounts in low-yielding bank accounts.

Careful buyers of LTC insurance also will check exactly what is covered. For example, not all policies cover assisted living facilities. You should review your policy, especially if it’s a home-health-care-only policy, a nursing-home-only policy, or any policy issued before 1990. If assisted living coverage isn’t included, ask the insurer if that coverage can be added, and, if so, how and at what cost.

Many residents in assisted living facilities, especially those with cognitive problems, may not need enough care to qualify for benefits under most LTC insurance policies. Seniors and their children might make the decision to move to assisted living, thinking that their LTC insurance will pay for the care, only to find out their claim is denied. Therefore, even if your parents have this coverage you should make sure that they have the ability to pay for expenses out-of-pocket, not only during the policy’s waiting period but also during any claims denial and appeal process.