Paying for long-term care is a worry for many, particularly aging baby boomers. Certified financial planner Kevin Young of Young Wealth Management in Davis, Calif., offers some advice on the topic:
Q: I’m 65 and interested in getting long-term-care coverage. My financial adviser recommends a life-insurance policy, which has a long-term-care benefit, that costs upfront about $70,000. The selling feature is that they refund your premium if you don’t use the long-term care after 20 years. A regular long-term care policy will cost $3,500 annually because of my age. My husband and I have about $400,000 in IRAs. Would it be a good move to protect these investments by buying either the regular long-term-care policy for me or the life-insurance policy that includes long-term-care benefits?
A: Health insurance and Medicare do not cover the expense of long-term care. If your net worth is mainly your IRA balance and your primary residence, buying LTCI/life insurance might not be the best use of your limited resources.
The policy being sold to you is known as a combination policy or bundled policy. It’s a life-insurance policy with a long-term-care insurance rider, which can be used to pay for long-term-care expenses. The pitch from insurance agents who sell this type of policy is that, if you don’t use the long-term-care benefit, you will have a death benefit.
The death benefit is reduced dollar for dollar when you use the long-term-care portion of the life-insurance policy. Combination policies such as this are expensive and do not offer a good value.
The drawbacks to these types of policies include high costs; couples cannot share the pool of long-term-care benefits; long-term-care benefits might be limited; and benefits might not keep up with future long-term-care costs.
By Claudia Buck
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