Long-term care insurance (LTCI) isn’t a policy type many Americans are currently shopping for. This is for several reasons: LTCI policies are difficult to qualify for, fewer insurance companies offer them, premiums have risen and priced most Americans out of being able to afford them, and most of them are structured as a use-it-or-lose-it expense.

Yikes! So, why would anyone want such a policy with so many drawbacks? Well, the concept behind LTCI isn’t terrible—the policy would pay out if you suffered from a long illness requiring around-the-clock institutional or in-home care for an extended period. With long-term care costs easily reaching $8,000 per month ($96,000 annually) in many parts of the country, needing this type of care could devastate your retirement finances.

A third option

There is another option besides either completely forgoing this type of coverage or paying more than you can afford for coverage you may never use: life insurance with an LTC benefit. This combination product, sometimes called a linked or asset-based policy, is usually offered in tandem with permanent life insurance, such as whole or universal life.

How it works

Most life insurance policies with an LTC rider require that you pay one lump-sum premium or several large annual premiums (usually for fewer than 10 years) for the rider. The average price of that lump-sum is $75,000, according to the American Association of Long-Term Care Insurance. The policy then provides money for long-term care that is equal to several times the paid premium and is deducted from the policy’s death benefit—the amount paid out to your listed beneficiaries upon your death. Some policies guarantee a small percentage of the full death benefit, such as 10%, will be paid out to beneficiaries even if you use all the money allocated for long-term care.

In order for the money to be paid out for LTC costs, you will usually need a qualifying medical exam that lists a diagnosis of a chronic, critical, or terminal illness that leaves you unable to take care of yourself.

A combination policy might not be for you

These types of policies are still expensive, even if they offer better value than a traditional, stand-alone LTCI policy. Most people can be financially secure only purchasing a term life insurance policy and studiously saving for retirement and later-life healthcare costs. The American Association for Long Term Care Insurance itself says that combination policies are best for people who already have the hefty lump-sum premium amount sitting around in another financial tool, like a CD or money market account.

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