Should You Purchase Life Insurance With Long Term Care?

June 20, 2018

If you have dependents, you might need life insurance. If you’re in your 50’s to mid-60’s with $200k to $3 million in assets, you may also need long term care insurance. Why not buy both together?

That’s the question presented by hybrid life and long term care policies and life insurance policies with a long term care benefit rider. Let’s take a look at some of the pros and cons:

Pros

  1. It can be easier to qualify for. The long term care underwriting can be more lenient when bundled with a life insurance policy. For people who can’t qualify for standalone long term care policies, it may even be the only option.
  2. You may have a life insurance policy you no longer need or want. In that case, it can make more sense to transfer the policy to one with long term care benefits rather than to simply let it lapse. This can be especially useful since the need for long term care insurance tends to coincide when people’s children become financially independent and the need for life insurance goes away.
  3. It can be an easier pill to swallow. Many people are reluctant to spend so much on a long term care policy that they may never use (and hope not to). On the other hand, life insurance is something that we know will eventually pay out if it’s kept in force. This way, it won’t feel like the premiums are potentially being “wasted.”

Cons

  1. You could be paying for life insurance you don’t need. At the same time, the long term care benefit is often not enough to cover the total cost of care. In that case, the money could be better spent buying more long term care coverage.
  2. You forego the benefits of long term care partnership programs. If you purchase a traditional long term care insurance policy through a state partnership program and use up all the benefits, you can qualify for Medicaid coverage and still keep an additional amount of assets equal to the long term care insurance coverage you purchased. A life insurance policy won’t offer the same asset protection.
  3. They can be more complex. Make sure you understand the fine print. These policies are not standard in terms of how much will be available for long term care coverage and how you can qualify.

For the reasons above, I typically suggest people consider purchasing a standalone long term care policy. However, if you can’t qualify for regular coverage or if you have a life insurance policy you no longer want or need, a hybrid might make sense. Just remember that a “suboptimal” policy is still better than no policy at all.