Smart Retirement Planning: Start Early and Consider a Hybrid Policy for Long-Term Care

The best time to be planning for retirement is when you’re still working and accumulating wealth. In addition to growth investments, cash reserves set aside for emergencies and life insurance, your potential need for long-term care (LTC) should be included in your retirement planning.

LTC not reserved for the elderly

When it comes to LTC, most people think “old people” and “elder care”, but the reality is that 70% of people turning age 65 can expect to use some form of long-term care during their lives. An estimated 20% will need it for longer than five years. In 2008, 40% of those who received LTC services were between the ages of 18 and 64.

Many life events could trigger an unexpected need for LTC services. We’re all vulnerable to accident, injury and illness, along with the naturally occurring process of aging. The expenses associated with LTC can impact your savings, retirement, family and your legacy.

Think about a hybrid policy, combining life insurance and LTC

Many people are wary of purchasing long-term care insurance because of the cost; happily, the insurance companies are responding to the need by rolling out new products that combine long-term care insurance with either a life insurance policy or an annuity, creating hybrid products.
The details of these products vary, but the general idea of a hybrid policy is that it allows a buyer to purchase a cash-value life insurance policy and to use a portion (or all) of that policy for long-term care benefits, if necessary, and keep the rest as a death benefit that will be paid to the purchaser’s beneficiary. If long-term care benefits are used, the death benefit may be reduced.

Tax benefits if distributions used to pay nursing home costs

These products have been on the market for a while, but they are gaining in popularity due to a law that went into effect in 2010, making distributions from life insurance and annuities tax-free when used to pay for long-term care costs. The case study below provides an illustration of how a hybrid LTC policy might work in conjunction with your other investments.

Mary, 65 and retired, rethinks her portfolio to include a hybrid policy

Mary is a healthy 65-year-old nonsmoker who is enjoying her retirement. She set aside $300,000 in the cash portion of her $1M retirement portfolio in the event she needed long-term care. At the advice of her financial adviser, Mary moved $100,000 into a single-premium hybrid long-term care policy. She now has $300k available for LTCI, $100k if she passes before needing care, and she’s freed up the remaining $200,000 for further growth investment. Mary has sound investments that provide significant dividends and now life insurance as well as long-term care insurance in the event she needs extended care for an illness or a disability.

You need to evaluate these hybrid policies carefully, so contact me for more information: carly@cjbins.com, 510.342.2670, cjbins.com