When we think of retirement, we tend to focus on the highlights—the freedom from work, the ability to travel and spend time with family, and the achievement of goals we had been putting off until after our careers. But retirement planning has a morose side as well, especially when it comes to topics like life insurance, estate planning, and long term care insurance.
No one likes to think about their mortality, let alone the idea that you may spend your final few years in need of round the clock care. But one retirement planning option you need to consider is long term care insurance, which can protect your assets and nest egg should you require assistance to perform daily tasks. Long term care insurance isn’t a necessity in your retirement plan, but it’s something worth considering if you’re concerned about future health risks potentially sapping your well-saved retirement funds. Here, we’ll explore traditional versus hybrid long term care insurance.
If you need assistance with your finances, work with a professional financial advisor from Good Life Financial Advisors of Mt. Pleasant. We’re ready to help create a personalized plan for your specific needs.
What is Long Term Care Insurance?
Like any type of insurance, long term care insurance is a policy that protects us from an unexpected outcome. Car insurance protects our assets if we cause an accident, life insurance takes care of loved ones should we die early, and long term care insurance provides a path to daily nursing or assistance without cracking open that nest egg.
Long term care insurance covers many different types of care and services typically associated with the adverse effects of aging. Some types of care typically associated with this kind of insurance are:
- Physical therapy
- Occupational or speech therapy
- Home health aide care
- Nursing home care
- Rehab services
Long term care insurance provides assistance should we ever lose our mental or physical capacities. For example, a dementia patient requiring home nursing care and personal assistance for cooking and cleaning could face some serious expenses if paying out of pocket. Long term care insurance would cover these services and prevent a huge bill from being slapped on a person who might not quite understand the care being rendered. In addition, long term care insurance can be used to fund palliative care like hospice service.
Traditional Long Term Care Insurance
Traditional forms of long term care insurance function just like auto or health insurance. You pay premiums upfront (usually monthly) and the insurance policy will cover your medical needs like nursing home care or a home health aide. Traditional long term care policies are usually quote flexible—you can choose the amount of coverage you wish to purchase and the length of time you want the policy in effect.
Traditional long term care policies have no cash value and can’t be handed down to heirs or transferred to a beneficiary. If you wind up never needing to use the long term care insurance, you can’t recoup any premiums. Of course, this means you’ve stayed relatively healthy in old age, and that’s a benefit often worth any price. Additionally, as long as premiums are paid on time, your policy cannot be canceled, regardless of how expensive the care you need becomes.
Hybrid Long Term Care Insurance
Hybrid long term care insurance combines some of the aspects of life insurance and annuities into a long term care package. Like a life insurance policy, a hybrid long term care policy WILL have intrinsic (ie. cash) value. It’s a tangible asset and you’ll be guaranteed to receive your principal back if you don’t use the long term care services provided by the policy.
Under a hybrid policy, you’ll be protected from capital loss in a couple of ways. First, you’ll receive a death benefit if you never wind up needing the long term care services. Secondly, you can change your mind and receive the cash surrender value back if you so choose. This is different from traditional long term care plans, where premiums are gone when paid and there’s no hope of leveraging them should you never need the extra care. Hybrid policies are more expensive than traditional ones, but premiums are locked in at the onset—you won’t face any sudden rate hikes when purchasing a hybrid plan.
Which Kind of Long Term Care Insurance is Right for Me?
On the surface, hybrid long term care insurance sounds like a sounder deal. You get the benefits for extensive medical care combined with value created by a life insurance plan or annuity. Hybrid policies aren’t subject to premium hikes and you can cash out of the policy if you change your mind.
However, hybrid policies come with higher premiums, some of which must be paid right away. It’s not unusual for a hybrid plan to require $50,000 to $100,000 upfront for the policy to be activated. Traditional plans don’t have any value outside the care they provide, but premiums are usually much lower and the benefits offered under the long term care portion are generally the same. Traditional plans also have more flexibility when choosing terms and benefits per dollar are higher across the board.
Remember, not everyone needs long term care insurance. If you have enough saved to pay for extra care like nursing homes or physical therapists out of pocket, a long term care policy might be a needless expense. But if you want to protect yourself from what old age might throw at you and are concerned about rising medical costs, consult with a financial advisor and discuss if long term care insurance is the right move for you.
Work With an Experienced Financial Advisor
If you have any questions about traditional versus hybrid long term care insurance, reach out to a team member from Good Life Financial Advisors of Mount Pleasant today.
The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.