Last month, in Caregiver Cheat Sheet: The Pros and Cons Of Long Term Care Insurance, Part I, we reviewed some of the exclusions, conditions, gaps, and costs of long-term care insurance (LTC). Armed with this information, LTC insurance can seem like a bad buy for most of us. This month, we talk about some of the alternatives that have sprung up in the wake of the big changes in the LTC insurance market. Caregivers and homecare companions need to know how to navigate the waters of long-term care insurance so that those whose loved ones need it can find a reasonable alternative.
After investigating all the possible variations of LTC insurance, you may have decided that this type of insurance isn’t right for you or your loved one. You’re not alone. There are alternatives that make very good sense for anyone who doesn’t have enough assets to self-insure, but doesn’t want to rely on what’s available when all their assets are gone. As the price of traditional long-term care insurance rises, and all but of handful of carriers have dropped out of the market, other financial products have stepped into the breach. In the last decade, a traditional financial product evolved to offer coverage and benefits that serve the LTC market in innovative ways.
‘Old-school’ life insurance could be more accurately described as death insurance, and it served just one purpose: deliver a lump sum to a beneficiary upon the insured’s death. It wasn’t much use to the insured while he or she was alive, except for the usual ‘peace of mind,’ and it left those without children or a spouse in the cold. Even traditional life insurance is a special kind of financial instrument, because life insurance payouts are tax-free to the beneficiaries. And the cash value that accumulates in the policy, which belongs to the insured while he or she is alive, grows tax-deferred and is useful for many kinds of financial purposes. Of course, there are as many types of insurance policies and structures as there are flavors at Baskin Robbins, but here’s a short list of what you can do with your traditional life policy:
- Lend yourself your own money to pay for
- College tuition
- A house down payment
- A wedding
- Secure a loan from a bank using the cash value as collateral
- Use your cash value to supplement your retirement income – and who doesn’t expect to need that?
You have the option to re-pay a policy loan, or not, and the latter choice simply reduces your death benefit and cash value. But life insurance has become much more useful in the last few years. With the introduction of a built-in feature called Living Benefits, or ‘benefits you don’t have to die to use’, life insurance now offers a viable alternative to long-term care insurance. There are several carriers that currently offer living benefits, and they aren’t all the same, some offering coverage as a hybrid with riders, and some including coverage as part of the policy. One leader in the Living Benefits field, National Life Group, allows you to tap into your death benefit in the case of a Critical, Chronic, or Terminal illness, giving the insured a lump sum or monthly payout to spend without restriction. This cute video makes it easy to wrap your mind around the intricacies of this new kind of life insurance. National Life even offers its Living Benefits on term policies, which is unusual in the industry.
While life insurance policies, even those with Living Benefits, are not direct replacements for long-term care insurance, they are with investigating. Caregivers, seniors, and loved ones who want as much flexibility as possible in their financial plans now have another option for health expense – and many other kinds of expense – coverage during retirement.