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LTC built in with Life Insurance

Sudhir Mathuria

Sudhir Mathuria HEALTHLIFE 360 713-771-2900

Consumers who are skeptical of traditional long-term-care insurance are snapping up “hybrid” policies combining life insurance with long-term-care benefits. But are these products really a better way to manage the risk of catastrophic long-term-care costs?
Although they come in many flavors, the most popular hybrids have a long-term-care rider to a whole or universal life insurance policy. Consumers can typically pay a single up-front premium, and if they never need long-term care, their heirs get the death benefit.
By paying a single premium or series of set premiums, you avoid the risk of future premium increases—an issue that has plagued traditional long-term-care policies. And many consumers have balked at the “use it or lose it” nature of traditional long-term-care policies; the hybrid’s potential death benefit removes that concern.
More than 200,000 hybrid life insurance policies were sold in 2015, up 37% from 2014, according to LIMRA, a life insurance trade group.
They’re gaining ground as “traditional long-term care insurance is becoming less of an option,” says Wade Pfau, professor of retirement income at the American College. Premium increases on policies priced years ago have made headlines, and several insurers have dropped out of the market. The number of new traditional long-term-care policies sold in 2015 dropped about 20%, according to the American Association for Long-Term Care Insurance.
Here’s how one popular type of hybrid product works: Two long-term-care riders are attached to a universal life insurance policy. If you need long-term care, the first rider pays down the policy’s death benefit over the course of two years. If you exhaust the death benefit, the second rider extends your long-term-care benefits for another two to four years. There’s often an option to get some or all of your money back if you change your mind about the policy.
The up-front cost is hefty: You’ll pay at least $50,000 to $75,000 to get a meaningful long-term-care benefit. You face no risk of premium increases, but that’s not much of a threat with stand-alone long-term-care policies priced today either, according to the Society of Actuaries. A major reason for the big premium increases on traditional policies priced years ago is that insurers overestimated the number of people who would allow their policies to lapse. In pricing today’s policies, insurers have tweaked their assumptions to reflect low lapse rates and low interest rates, and they have more claims data to guide pricing decisions. As a result policies priced in 2014 have smaller chance of needing future rate increases, compared with 40% for those priced in 2000, the Society of Actuaries found.
While the hybrid products ensure that you’ll get something out of the policy even if you never need long-term care, they also give option to earn similar to market rate of return on a large chunk of your money specially if it is indexed with market. In a typical hybrid product purchased today, the cash value will grow at a very modest rate, such as 2% to 3%. That may sound reasonable in today’s low-rate environment, at the same time if rates rise substantially most insurance companies will adjust the rate to stay competitive.
Compare Your Options
When weighing hybrid products against traditional long-term-care insurance policies, consider how you might invest the money that’s not spent on premiums. If you would leave it in cash or other low-return holdings and don’t foresee any need for the money, that might be an argument for the hybrid product. If you would aim for a moderate return and might need the money to cover living expenses, stand-alone long-term-care insurance may make more sense.
For individual evaluation for Long Term Care planning or Medicare plans contact Sudhir Mathuria 713-771-2900.
Read complete report online:www.voiceofasiaonline.com

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