Ten years ago, the best option for buying long-term care insurance was a conventional policy. Policies combined with whole and universal life insurance were available, but not very good options. Today, the long-term care market is different and the combo life insurance and long-term care plans look a lot better.
"For a long time -- in the '90s and 2000s -- life combination products were very expensive," says Catherine Ho, product actuary for life insurance research firm LIMRA. "Today, the prices have come down, and there are a lot more options."
In the last several years, insurers have been losing money on conventional long-term care insurance. Investment returns are low; plus, people are living longer and using their long-term care insurance. As a result, the number of companies selling conventional long-term care insurance has shrunk, while prices for the plans have risen astronomically. Life insurers saw an opportunity and figured out how to make combo life and long-term care insurance policies more flexible, less expensive and more appealing. As a result, combo life and long-term care policy sales grew 10 percent in 2012, the fourth straight year of double-digit increases in the business, according to LIMRA.
What many people doing retirement planning like about combo life and long-term care is that if they don't need to use the long-term care, the money they have paid into the plan remains life insurance. Then when they die, their chosen beneficiary will inherit it. They don't feel like they are just putting retirement money down a rat hole.
Ho says that there are basically two models for this kind of insurance. Here are some examples. The actual pricing you'll be offered is dependent on many factors.
In the first variety, you spend a $70,000, one-time, lump sum on a life insurance policy that has a face value when you die of $150,000. In the meantime, you get a long-term care benefit worth about twice that -- $300,000. If you have to use the long-term care, that eats up the death benefit. If you don't use long-term care, your heirs get the $150,000.
The second variety is based on a monthly payments. Roughly, $800 a month over 10 years buys you $300,000 worth of long-term care or $150,000 in life insurance when you die. If the returns are good, the benefit may rise, but the monthly payment never changes.
Generally, these are individual products -- they don't cover both halves of a couple. LIMRA says 60 percent are sold to women. Underwriting isn't as strict as it is with conventional long-term care. Even people who have had such serious illnesses as cancer may be able to buy one of these policies.
If you are in the market for long-term care, this approach might be worth considering.