More and more, financial advisers are recommending that clients have long-term-care insurance as part of their overall financial plan.

Long-term care helps to mitigate the financial, physical and emotional consequences of caring for someone who has physical and/or cognitive impairments,” says Barbara Carrollo-Loeffler, a financial representative with the Northwestern Mutual Financial Network in Summit, N.J.

Specifically, a tax-qualified, long-term-care insurance policy will pay benefits if and when you have a cognitive impairment, such as Alzheimer’s disease, or you need assistance with two of the six so-called activities of daily living: eating, bathing, dressing, going to the bathroom, getting in and out of bed or a chair, and maintaining continence.

Extra peace of mind about the future is always good, but there’s a cost. If you buy long-term-care insurance and never use it, it’s the best scenario for your health. But have you wasted the money you spent on premiums?

That’s the question that’s spurred insurance companies to design hybrid products, allowing customers to get some benefit from their long-term-care insurance even if they never need care.

Long-term care with life insurance

The John Hancock Life Insurance Co.’s LifeCare based in Boston is a combined whole life insurance policy with long-term-care insurance, according to Chris Rogers, John Hancock’s vice president. It is a single-premium life insurance policy with a cash value. In other words, you can use this like a simple life insurance policy. You pay in an amount of your choosing in one lump sum (a single premium). Whenever you die, the company pays your heirs some multiple of that amount. “The death benefit is approximately 2.5 times what you put into it,” Rogers says.

But there’s a distinct difference with LifeCare than with other policies.

“The death benefit can be accelerated and used for LTC. If you need care during your lifetime, you can draw down on the benefit to pay for those needs. Whatever you use reduces the balance in your life insurance plan, but if there is something leftover when you pass, that amount is still paid to your named beneficiary,” Roger says.

The “cash value” is also a benefit of this plan that doesn’t come with a standalone, long-term-care insurance policy. If you cancel your LifeCare policy at any point, you get back the amount you put into it.

OneAmerica’s State Life Insurance Co., based in Indianapolis, has the Asset-Care plan with similar benefits. Bruce Moon, vice president of OneAmerica’s State Life says, “We take whole life insurance and utilize the death benefit if it’s needed for LTC. It can work as a regular life insurance policy for anyone who doesn’t need LTC.”

An Asset-Care policy can be purchased with a single premium or a monthly premium, in any amount from $50,000 to $1.5 million.

Dan Jones, an internal wholesaler for Nationwide Mutual Insurance Co., based in Columbus, Ohio, says Nationwide doesn’t sell any standalone, long-term-care insurance. But it does offer a long-term-care rider, or an addition or alteration, to their universal-life and variable-life insurance policies.

“If all goes well, you pass the money on to your heirs. But if not, we advance the death benefit to you to cover long-term-care costs during your lifetime,” Jones says. He notes another advantage: “The benefits are income tax-free because life insurance payouts aren’t taxed, and all we’re doing is essentially advancing a death benefit.”

Long-term care with an annuity

In March, Genworth Financial Inc. in Richmond, Va., launched its Total Living Coverage Annuity. “It’s a single-premium annuity, with a long-term-care insurance rider,” says Genworth spokeswoman Deborah Pont.

Here’s the way it works: You make a lump-sum payment to purchase an annuity. If you never need care, then your annuity continues to accumulate in value. However, if you need care, those dollars are available to cover the long-term-care costs at up to three times the amount of your original premium.

Similarly, OneAmerica’s State Life has a plan called Annuity Care, which also works like a single-premium annuity. For those purchasers who don’t need long-term care, the money grows at an interest rate of at least 3 percent and comes back to them in regular monthly annuity payments during the specified period. Moon says if a buyer of this plan does need care, he or she will receive monthly payments to help cover those costs instead, and the interest rate on their investment will be at a higher rate (currently 4.05 percent).

Another benefit: Thanks to changes resulting from the Pension Protection Act of 2010, these annuity plans pay out long-term-care benefits tax-free as of Jan. 1, 2010.

Getting more for your money

“More and more, people who are interested in LTC financing really want some asset-based approach — something they can get a report on and see that their money is growing and has some value even if they walk away from it,” says Moon.

Rogers says the new approach to long-term-care insurance offers greater options to consumers. “The advantage to having hybrid plans as well as traditional is not necessarily that one is better than another,” Roger says. “It’s just that people have different needs. This should be evaluated by a financial adviser as part of the total picture.”

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