Taxes & Insurance

Long-term care insurance can be expensive, one main reason that it is one of the less-common forms of insurance people carry. Premiums can be in the thousands of dollars a year to protect against something that may never happen.

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.

Such options are not available through the Federal Long-Term Care Insurance Program for federal employees and retirees, however. If you want to pursue this course, it would have to be through a direct purchase as an individual or through some other group plan for which you may be eligible.