By Brian Gordon, President of MAGA LTC.
If you do decide that your best option long term care planning option is to purchase insurance, you have a wide range of choices. While this is a good thing, it also requires more thought on your part.
In a nutshell, you have three options: to choose a standalone LTCI policy, a hybrid plan, or a combination of insurance and self-insurance. Let’s take a brief look at each one.
Standalone LTCI Policies
Standalone LTCI policies have been around longest. As hybrid plans become more popular, fewer people are choosing standalones, although they remain the most affordable coverage. With these policies, you choose a monthly benefit amount and duration, paying premium on an ongoing basis.
The advantages of standalone LTCI policies are:
- Premiums are the most affordable.
- Expenses are deductible for business owners.
- You can add valuable riders—such as the inflation protection rider, which increases your benefit over time to keep pace with inflation.
- You can enjoy a discount if you and your spouse or partner both purchase policies.
The disadvantages of standalone LTCI policies are:
- You may never actually use your coverage.
- Women pay higher premiums than men.
- Carriers can decline you based on your medical history.
- Premiums can increase. (It’s gotten better, but it can happen.)
Hybrid LTCI Plans
Hybrid LTCI plans combine permanent life insurance or annuities with long term care insurance. If you already have permanent life insurance policy or an annuity, you can repurpose it into a hybrid plan that includes LTCI benefits. If not, you can buy one outright.
The advantages of hybrid plans are:
- You’ll definitely use it—premiums are never “wasted.”
- Funds aren’t subject to federal income tax.
- Your premiums won’t increase.
- Plans are easier to qualify for, even if you have imperfect health.
- Typically, you can cash in your policy and your initial premiums back.
The disadvantages of hybrid plan are:
- Premiums are higher than for standalone plans.
- Death benefits are reduced, if you use some coverage for long term care.
- Inflation protection is required, and it can be expensive.
- You have fewer choices than with standalone plans.
Combining LTCI with Self-Insurance
After considering their options, many people who like to plan thoughtfully will combine some LTCI with some self-insurance. They can’t afford to fully self-insure, but they don’t want to burden their families, either. For them, combining strategies allows them to make the most of the money they have.
In addition, the advantages of combining strategies are:
- You’ve made it possible to secure quality care. You’ve given yourself more choices.
- You’re signaling to your family that the type of care you receive is important to you, while lifting the burden off their shoulders.
- If your financial situation changes or your LTCI premiums go up, you can change the balance of insurance and self-insurance.
In short, there are numerous ways to mix and match strategies. One advantage of long term care planning is that you call the shots. If you’d like more information about long term care insurance, and if it might be a good choice for you, click here.