Ordering the Combo: Life Insurance with Long-Term Care Benefits

Combine Life Insurance and Long-Term Care

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The biggest risk of buying long-term care insurance is that you might spend tens of thousands of dollars on something you won’t use. Policies pay for nursing homes, assisted living or home health care — but what if you never need these services? New types of policies combine long-term care insurance with permanent life insurance, such as whole or universal life.

If you want both types of coverage and can front the money, these hybrid options are worth a look.

How combination policies work

Combination long-term care/life insurance policies pay for long-term care that regular health insurance or Medicare won’t cover. And if you don’t max out the long-term care benefits, the insurer pays a benefit to your beneficiary upon your death.

Also called linked or asset-based policies, combination products work this way:

  • Depending on the policy, you pay one lump-sum premium or a few large annual premiums — typically for fewer than 10 years, according to LIMRA, an industry research and consulting group. The average cost of a single-premium combination policy is $75,000, according to the American Association for Long-Term Care Insurance.

  • The policy provides a pot of money for long-term care that’s equal to several times your premium payments.

  • The policy’s death benefit will be reduced — which means less money for your life insurance beneficiary — according to how much of the long-term care benefit you use. Some policies guarantee a small percentage of the full death benefit, such as 10%, even if you use all the money allocated for long-term care.

  • You’ll need to supply medical records and take a life insurance medical exam to qualify for some combination policies. Others offer “simplified underwriting,” which means you may only need to answer health questions over the phone. If you’re healthy, you’ll pay less for coverage if you buy a policy that requires both an exam and submission of medical records.

Combination policies differ, but here’s a hypothetical example for a MoneyGuard II policy from Lincoln Financial: A 60-year-old female nonsmoker pays a single $100,000 premium for up to $453,783 in long-term care benefits, or about 4.5 times the premium. Long-term care benefits could pay out for up to six years, at up to $6,303 per month. If she never used the policy for long-term care, it would pay a death benefit of $151,261 to her beneficiary. And after year five, she could get her $100,000 back if she didn’t want the policy any longer and hadn’t used any of the long-term care benefits.

Interest in combination long-term care/life insurance policies has taken off. In 2021, more than one-fourth of Americans said they were very likely to consider a combination policy if they were shopping for life insurance, up from 17% in 2019, according to LIMRA.

The appeal of combination policies

Aside from the fact that you get something for your premium no matter what, the biggest advantages of combination policies are:

  • The policy can be a good investment if you otherwise would have spent the money or kept it in a low-yield account.

  • You won’t have premium hikes when you pay with a lump sum, and a policy with a limited number of payments might even guarantee the premiums will stay the same. Some owners of traditional long-term care insurance policies have seen their premiums double within the past several years as care costs have surpassed insurance companies’ projections. And with historically low interest rates, insurers haven’t made enough investment income off of premiums to pay claims.

  • There’s a money-back guarantee with some combination policies. The insurance company will return your premium if you decide you don’t want the policy after a certain period of time, such as five years. Before then, you can get a percentage of the premium back.

The downsides

A combination long-term care/life insurance policy is probably not for you if:

  • You only need life insurance. In that case, you should buy a regular term or permanent life insurance policy. Term life, designed to cover the years that your family depends on your income, is sufficient for most people. Permanent life insurance covers you for your whole life.

  • You don’t want permanent life insurance. If you need only temporary coverage, shop for term life insurance, which is much cheaper.

  • You don’t have $75,000 (or more) burning a hole in your pocket. The American Association for Long-Term Care Insurance says that combination policies are best for people who have “lazy money” sitting in CDs or money market accounts.

Get advice before you decide

If you do decide on a combination policy, compare quotes from multiple insurers, and check the insurance companies’ financial strength ratings before you buy. It takes only a few minutes to look them up on the websites of independent rating firms, such as A.M. Best, Fitch Ratings, Moody’s Investors Service or Standard & Poor’s Ratings Services. (You might have to register on some sites to access ratings, but registration is free.) The ratings agencies issue grades for insurance companies, and each agency has its own scale.

Combination policies are complex products, and their costs and benefits vary. Before you buy, talk with a financial advisor who understands these products and can compare them to stand-alone long-term care and life insurance options.

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