If you've been delaying buying long-term care insurance as part of your retirement plan because you don't think you'll need it, you might consider a different flavor of this product -- life insurance with a long-term care rider.
An increasing number of insurers are offering it, including Sun Life, which just introduced these policies this month. According to Bob Klein, vice president of life insurance strategy at Sun Life, it works likes this:
You buy a whole life policy. The earlier you buy it, the less you pay. For instance, if you buy a $100,000 policy at age 50, you'll get $10,000 per month for six years in long-term care for a total of $720,000 in long-term care insurance. If you die without needing long-term care, your heirs get $240,000. If you buy the same amount -- $100,000 in life insurance -- at age 65, you get $6,500 per month in long-term care for six years, and if you die without using it, your heirs get a $158,000 death benefit.
A couple needs two policies. It's not an either-or deal. There's a discount for buying two policies, but both people need their own.
Inflation protection is available. If you buy the policies when you are young and they are cheapest, you may decide you need inflation protection and that will raise the price.
Is this a good deal?
It's certainly not for everybody. You have to feel comfortable locking up this much cash, possibly until you die. If you don't need what you spend, your heirs get the money back, plus a little interest. On the other hand, the cost of buying a conventional long-term care policy is generally cheaper for more, and often better, coverage. Even Klein says that people who choose these policies are really trying to supplement self-insurance.
A good thing about these policies is their underwriting flexibility. Your health is a big factor with conventional long-term care insurance. Life insurance policies are much more forgiving. Sun Life doesn't require a physical or any lab work. The company will turn down people with an Alzheimer's diagnosis or some other problem that is likely to land them in long-term care quickly, but if you're generally healthy and as old as age 80, it will probably sell you a policy.
From an insurer's point of view, they can afford to be more flexible because unlike with conventional long-term care insurance, the company knows how much money it will get -- it's all paid upfront -- and it knows the maximum it will have to pay, so the underwriting risk is less.
Klein says a lot of customers appear to be relatively affluent people who have dealt with long-term care for their own parents and know how expensive it can be. "We suggest that you build it into your retirement planning so you aren't scrambling in the end," he says.