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Hybrid Long-Term Care Might Be Right for You

With an upfront payment, you can avoid the risk of rising premiums -- or unused benefits.

For people worried about the rising cost of health care eating into their savings, a stand-alone insurance policy for long-term care can provide some peace of mind. It can help protect your assets in case you have extended need for assistance, including medical services and personal care.

The downside is that, in most cases, if you are lucky enough never to need coverage, you will not receive anything in return for the premiums you paid. And while premiums are meant to remain level, there is no guarantee that they will.

That's why, for those with the financial wherewithal to do so, self-insuring for the risk of long-term care can make a lot of sense. Instead of paying out money for a policy that may never be used, the money can be invested and funds put aside to cover the cost of care, if needed.

However, if you're lucky enough to be in this group, you may find that a hybrid or combination product -- one that combines a universal life policy with a long-term care benefit -- may be worth checking out. These have been around for several years, though they're not yet widely available.

With a one-time, lump-sum premium payment, policyholders can access a pool of money if they need care. If they never need long-term care benefits, then their heirs receive a death benefit. Some carriers also include a money-back guarantee of the full premium, whenever you request it.

Obviously, this product isn't for everyone. Consider it only if you meet the following criteria:

  • You have significant liquid assets available. With a single premium payment ranging from $50,000 to $100,000, a hybrid policy is only for those with significant cash available that can be reallocated. Mark Chandik, a managing partner of Financial Diligence Partners in Irvine, Calif., finds that his high-net-worth clients like the idea of repositioning and leveraging liquid assets. "My clients are smart about making their money work for them" says Chandik. Of course, if you have a spouse that needs to be insured, you're talking about double this figure.
  • You understand the risk to your portfolio. Once you have accepted that you may need care someday and that this care may be very expensive, the next step is to take a good look at what that will mean to your retirement portfolio. If you want to protect your assets, then consider insuring some of the risk.
  • A stand-alone, long-term care policy is not an option. If you are not interested in paying premiums indefinitely on a policy you may never use, then the hybrid product -- with a death benefit built in -- may be an option. Or perhaps you aren't thrilled with the possibility of getting hit with an increase in premiums if the insurer has not set aside enough reserves. By paying a single premium up front, the issue of premium increases evaporates.
  • You have been planning to self-insure. Mark Doherty, business leader of hybrid products at Lincoln Financial Group, suggests that "the funds used to pay the lump-sum premium should come from a larger pool of savings already put aside for long-term care needs." If you haven't already recognized the financial risk of the cost of long-term care, you are not ready for this product.
  • The ability to get something back for your premiums and retaining control of your money is important to you. You will, at minimum, get the use of your full premium either through long-term care benefits, a death benefit or by requesting a return of premium.
  • Simplicity is important. While the long-term care portion of the policy contains the same framework of coverage as a stand-alone policy, there are fewer bells and whistles to add -- or to complicate the deal. Inflation riders are available, but with the target policyholder age between 55 and 75, the initial purchase is often enough to cover future cost increases or self-insure remaining costs. (Another option is available with New York Life's Asset Preserver, which allows you to purchase add-on benefits of 5% annually until you no longer feel it necessary.)

I came across only a handful of carriers that offer these plans in some form or another, including New York Life Insurance and Annuity Corp, or NYLIAC (a subsidiary of New York Life Insurance Company),

Lincoln Financial

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(GNW) - Get Genworth Financial, Inc. Class A Report

and Golden Rule Insurance, a subsidiary of

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(UNH) - Get UnitedHealth Group Incorporated Report


Your financial adviser may know of others. Each carrier will have its own version, with varying importance placed on the long-term care vs. universal life portions of the policy and with different target audiences in mind.

Lincoln's MoneyGuard Reserve provides long-term care benefits, depending on your age and premium, at a rate of about five times the amount of premium paid and a death benefit of nearly two times the premium. For example, let's say you are a 60-year-old female. For a $100,000 single premium payment, you would have $579,891 of long-term care benefits available (subject to a monthly maximum) and a $193,297 death benefit.

If you need care, the death benefits are accessed first. If you use only a portion of the death benefit, the remaining portion passes to your beneficiaries without an income-tax penalty. You can also ask for your full premium back at any time (less loans and withdrawals), allowing you to maintain control of the money.

The NYLIAC Asset Preserver includes a residual death benefit feature: If you spend the full benefit amount on long-term care costs, this feature kicks in and provides a death benefit of 10% of the total original benefit.

Work with your financial planner if you're interested in a hybrid product to make sure it is suitable for you and to make sure it works in concert with the rest of your portfolio, and to find a carrier offering a product in your state.

Remember, Ratings staff analyzes insurers for their financial strength on the basis of capitalization, profitability, liquidity, stability and investment safety and assigns ratings of A (excellent) to E (very weak) to each company. Be sure to check out the rating assigned to any carrier you select -- financial strength is one of several factors you should take into account before purchasing a policy. You can find the ratings of any insurer at

this link.

Donna O'Rourke joined Weiss Ratings, now Ratings, Inc., in 1999, and is the senior analyst responsible for assigning financial safety ratings to health insurers and supporting other health care-related consumer products including Medicare supplement insurance, long-term care insurance and elder care information. She conducts industry analysis in these areas. She has more than 10 years experience in credit risk management and analyses. Previously she served as an assistant vice president at the Union Bank of Switzerland, where she analyzed hedge funds, insurance companies and structured products in support of the derivatives and foreign exchange businesses. She holds a bachelor of science in management from Binghamton University and a master's of science in health systems administration from the Rochester Institute of Technology.

While O'Rourke cannot provide investment advice or recommendations, she appreciates your feedback;

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