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Long Term Care- Policy Options

By Jody M. Sharer, Investment Advisor and CCO of Nestlerode & Loy, Inc.


When you think about your golden years, where do you picture yourself? Perhaps it is sitting on a rocker on the front porch surrounded by family, or spending sunny mornings walking on the beach, or volunteering your time to your favorite charities. Many of us look forward to living out our golden years in the best of health, active both physically and mentally. 

Unfortunately, as we age we may become partially or even completely dependent on family members or others to assist us in  the various activities of daily living. For this reason many people are considering Long Term Care policies for protection of their assets as well as providing their loved ones with the knowledge that mom or dad are taken care of.

Purchasing a policy to cover your Long Term Care (LTC)  needs is not for everyone. When you purchase a LTC policy, you select the waiting period, the daily or monthly benefit, the location of services, and related considerations. Additional options are Hybrid LTC policies or Partnership Plans. In this article I will explain some of the benefits and trade-offs of purchasing a Hybrid plan for your Long Term Care insurance coverage.

Hybrid LTC insurance policies combine Life Insurance Policies with Long Term Care Riders. The primary benefit to a Hybrid plan is that there is no “use it or lose it” proposition.  What this mean is if you don’t use the LTC portion, your beneficiaries still receive the death benefit tax free. If you carry a mortgage and have dependent children, a Hybrid plan including Life Insurance may be of benefit to you. Of course there is a trade-off.  Hybrid plans generally will pay out less than a Traditional LTC policy and they may not offer the inflation protection available in a traditional LTC policy. A benefit of a Hybrid policy is that people who have been turned down for traditional LTC policies due to health issues may still qualify. As with other whole life policies, you may have the benefit of having the cash value or premiums returned to you should you cancel the policy.

Although there are companies that offer policy premiums paid over time, Hybrid Plans are generally purchased with a one-time lump sum. The single premium could come from an appreciated annuity or life insurance policy. This is done with a tax- free transfer called a 1035 exchange. This tax-free exchange eliminates any taxable gain you would pay on taking cash out of these accounts by allowing tax-free payouts for qualified expenses. This allows you to use money that may not be active in your retirement budget and put it to use as coverage should you need Long Term Care. Another benefit of a one lump sum policy premium is that you will not see premium increases as you age.

Everyone has a variety of needs and will approach purchasing a Long Term Care policy differently. Take time to speak with your financial advisor about adding this protection as part of your overall retirement picture. This additional step in planning for your golden years will help ease your mind.


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