3 ways to buy long-term care insurance

Instead, Dorrell directs her clients to a fixed annuity with LTC benefits.

"The majority of them, when you put $100,000 in, that's your $100,000 to spend, whether you need long-term care or not. But by putting the rider on for an extra 1.5 (percent), 2 (percent) or 3 percent per year, you may have double to use for LTC," she says. "You put that $100,000 in, you pay that rider fee for, let's say seven years -- now your (annuity) balance is, say $150,000, but you have $200,000 in there for long-term care."

The annuity approach has several advantages: You retain access to your money (although fees usually apply), the cost of the LTC rider may be less than an LTC policy, and you can obtain coverage without health underwriting if you've been turned down for a stand-alone policy.

The disadvantage: Besides that steep upfront investment, the rider fee can eat into your annuity's interest income, and you'll be locking that money up today at a relatively low rate.

"With interest rates so low, that's just not attractive," says Slome. "But annuities will take off once interest rates start to go up again."

Life insurance with an LTC rider

There's one important question to ask before you consider a life insurance policy with an LTC rider: Do you need life insurance?

"If you don't, why would you buy it?" Slome asks. "The life insurance companies are not giving away free life insurance to incentivize you to buy long-term care protection."

The life insurance approach to long-term care coverage is fairly straightforward: You invest in a cash-value insurance product -- whole, universal or variable universal life -- and select your LTC coverage terms in the rider. Once you trigger your long-term care insurance coverage, it comes out of your policy's death benefit, usually on a prearranged schedule. At death, your beneficiaries get what's left of your life insurance.

The upside: If you don't use the LTC, you've saved the premiums of a stand-alone policy.

The downside? "Some of the combo products I've seen with an LTC rider tend to be fairly expensive," says Sullivan.

Slome adds that because the LTC money comes out of your death benefit first, "you're just getting back your own money, and if you live beyond having spent your own money, then it will trigger the long-term care portion of the policy."

So what's your best move? Slome offers this advice: "If your need for long-term care is relatively short, meaning a year or two, consider a hybrid life product. But if your need is likely to be longer, you're going to blow through the policy and be back on your own savings. Then you're going to regret that you didn't buy a traditional long-term care policy."


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