As we get older, a reality begins to sink in: in our old age, we will need special care and, most likely, special long-term care. Paying for this type of insurance can be very expensive, so many people save for extended periods of time to earn the money they need to pay for these services. One very interesting alternative is purchasing life insurance that can also serve to cover the cost of long-term care.
In this article, we will explain how to design a strategy that will cover a large part of these payments by using life insurance. Keep reading to find out which mechanisms and resources you can use. 
Medical Care in Old Age and Life Insurance: Article Contents
Combination Life Insurance to Cover Your Long-Term Care
As we live longer, it is becoming more and more common to need long-term medical care during old age. These are services that are often offered at home: nursing care, treatments and other basic services, such as help dressing or eating, which, in many cases, might be necessary for five years or longer. In fact, according to data from the National Association of Insurance Commissioners (NAIC) and the Center for Insurance Policy and Research, at least 52% of Americans turning 65 in 2019 will end up needing long-term care in the coming years.
Some of these services are included in health insurance coverage, or in the benefits of programs like Medicare. However, there are often specific types of long-term care that are not covered by any insurance, so many people turn to other tools, like specific insurance policies for long-term care. But we can’t always buy insurance for every need, and we have to decide which product to get.
Faced with this situation, one alternative that many people are flocking to is combination life insurance. This is a product that combines a conventional life insurance policy with certain features aimed at long-term care insurance.
These are also called hybrid or asset-based policies. The way they work is simple: they are generally paid for in the form of annual premiums or even a single premium. This will give you access to a policy that includes a fund for long-term care equal to several times the cost of the premium. If you use this fund, it will reduce the amount intended for the payout or death benefit, so the insured’s beneficiaries will receive less money upon their death.
These policies typically set a minimum below which the benefit can no longer be reduced–for example, 10% of the original coverage.
Medical Care Riders: Accelerated Life Insurance Benefits
If you don’t want to purchase combination or hybrid insurance, you can choose another approach: purchasing normal life insurance and supplementing it with optional riders that will pay the cost of this care.
These types of riders are usually called accelerated benefit riders. They are benefits that the insured can enjoy during their lifetime.
Policies that include these riders usually indicate the circumstances under which they are activated. They tend to require the insured to be disabled and need specific care for a specific duration of time. For example, they may require the insured to be unable to independently eat, bathe, dress or move around for 30 days. If these conditions are met, the insured can ask the insurer to advance part of the coverage benefit.
Insurers often allow you to access to up to 95% of the money intended for the payout, though access may be more limited with some companies. It is also common for the insurer to decide how much to advance depending on the state of health of the insured. These amounts are given in monthly payments that typically don’t exceed 2% of the value of the coverage, so they are rationed.
Of course, the money that is advanced will be subtracted from the coverage, but as the coverage is reduced, the premiums will be recalculated, so they too will be lower.
Designing a Strategy to Guarantee the Best Care
With these available options, the important thing is to design a plan that will guarantee proper funding of this type of care in your old age. It’s necessary to take into account different products’ features and their advances and disadvantages.
If you opt for hybrid or combination insurance, the idea of making a single payment–single premium–is very interesting, because you can avoid any possible increases in premiums and this amount will always be lower than in the future.
What’s more, many of these combination policies include a return of premium guarantee if, once a certain time such as five years has passed, you decide not to continue with the insurance.
However, hybrid insurance can be excessive for people who don’t need life insurance coverage just yet because their families don’t depend on them to get by. And in many cases, this type of insurance (permanent) exceeds the needs of people who could simply be covered by term life insurance.
If you use life insurance with an accelerated benefit rider to cover long-term care, there are a few disadvantages. The biggest one is that life insurance coverage with a rider of this type may be insufficient to fund very long-term care, so you can’t completely rely on this option.
Moreover, these riders may not take inflation into account. If they did, the payments made would be insufficient to cover the cost of the care. Lastly, keep in mind that using one of these riders could disqualify you from the Medicaid program.
In any case, whichever model you choose, it’s always a good idea to use life insurance to cover your medical care. It will free up your savings and other income for other purposes, such as leaving behind an estate or enjoying this money during your lifetime.
