There are several ways to cover your long-term care needs. These include self-insurance, traditional long-term care insurance, hybrid-linked benefit policies and use of annuity contracts. We look at the pros and cons of each in brief and which policy suits what kind of person.
Traditional Long-Term Care Insurance
This has till now been the most common and rather popular means of long term care insurance. The insurance concept basically gives you a single stand-alone policy whose benefits you elect at the beginning of the contract. Most of these traditional policies provide a monthly benefit of a certain amount, a specified benefit period, inflation protection and a waiting period. Premiums for these policies are usually paid on monthly, quarterly or semi-annual basis.
Traditional Long Term Care Insurance policies have no cash value unlike with annuities. If the policy owner does not make a claim, then they do not receive any benefits. It basically works like your car insurance. Most of these policies are however customizable to meet specific needs of each client. Traditional policies will also in most cases provide Medicaid benefits if inflation requirements are met by the client. Premiums also happen to be subject to periodic rate increases with most service providers.
Hybrid Long Term Care Insurance
Traditional LTC policies do not have cash benefits unless the policy holder makes a claim within the period. However, one could choose to link their future benefits of long term care to a paid life insurance policy or annuity. Most of these hybrid LTC policies start with a one off payment that could range from $50,000 to any amount. Most of these policies also provide the added benefits of electing future benefits at the onset of the policy.
Unlike traditional insurance policies, a client is guaranteed to receive their premiums back in case they never require long term care. A hybrid policy will pay for long term costs should one be required, provide a tax-deferred insurance benefit if the client does not need care and provide a full refund should a client have a change of mind. Hybrid policies are generally favorable for clients with liquid assets that are not required as a means of income in requirement.
Annuity
An annuity is basically a financial product designed to accept and grow funds from a person and then on annuitization pay an amount or a series of amounts to the person after an agreed upon period of time. The period when the individual pays the funds but does not receive benefits is known as the accumulation phase of the annuity. Annuities were designed to provide income streams to individuals after their retirement and to reduce the very possible risk of scenarios where one outlives their assets. There are various types of annuities; fixed, variable, single and multi-premium, tax-deferred and guaranteed annuities. Choosing between an annuity and life insurance will depend greatly on a person’s specific objectives. Annuities provide a safety net of income streams in retirement while life insurance benefits those left behind once the principal passes away.
