Life insurance is never a fun topic to think about, and it may seem like an unnecessary expense. But if you have people who depend on you for financial support, then life insurance is about protecting them in case something happens to you – your designated beneficiary would collect a financial benefit upon your death. Life insurance can become confusing, and keeping track of all the different types/options of life insurance makes it that much more overwhelming. To help simplify the world of life insurance, this article will break down different types of insurance and the potential benefits of a combination policy.
Life Insurance 101
Types Of Life Insurance
Before we even discuss the benefits of whole life insurance combined with long-term care, we have to take a step back and break down the different types of life insurance:
- Term: This is the simplest and generally the cheapest form. You buy coverage for a specific period of time. It can usually be renewed, but premiums will increase based on age and health factors. There is no cash value.
All other types of life insurance are permanent, but there are still several varieties. They all include a savings element that builds cash value, in addition to the death benefit. Once the cash value accumulates, it is accessible to the policyholder tax-free. The following are some of the common types of permanent life insurance:
- Whole Life: You purchase this policy to cover your entire life, as long as you keep paying premiums. Premiums remain constant throughout the policy, and the company invests a portion of your premium that becomes the cash value. These are more expensive than term policies in the early years, but they even out because the premium does not increase.
- Universal Life: This policy is similar to whole life, but has the potential for higher earnings on the savings aspect. It’s more flexible in terms of changing premiums and face value throughout the policy. There is usually a guaranteed return on the cash value. Disadvantages include higher fees and the possibility of increasing premiums.
- Variable Life: A variable life policy generally has fixed premiums, and you have control over the investment decisions for the cash value portion. However, this is riskier because there is no guarantee for the cash value.
What Is Long-Term Care?
Long-term care (LTC) refers to a wide array of medical care, personal assistance, and social support services for people who are physically or mentally unable to independently care for themselves for an extended period of time. This care can be provided in a nursing home, an assisted living facility, or in one’s home. Generally, the disabilities requiring LTC are caused by accidents, illnesses, or advanced age.
What Is Long-Term Care Insurance?
To combat the high costs of long-term care, LTC insurance protects individuals against incurring large out-of-pocket expenses in the future by paying affordable monthly premiums. There are two different types of long-term care insurance policies available:
- Individual long-term care insurance
- Group long-term care insurance
Individual policies are generally purchased by people whose employers do not offer a group policy, or by those who feel that they need to supplement their employer’s policy to obtain the most coverage possible. If employers offer long-term care insurance to employees in the form of group long-term care insurance, the policy may not offer the same level of protection afforded by individual long-term care insurance policies.
Prior to purchasing a group policy, it’s wise to compare the level of protection and the level of protection guaranteed incomparable individual policies. All long-term care insurance policies should also clearly state if they are individual or group policies.
How Combination Policies Work
The combination of long-term care with life insurance policies pays for long-term care that typical health insurance or Medicare won’t cover. Additionally, if you don’t max out the long-term care benefits, the insurer pays a bonus to your beneficiary upon death. The 2020 Insurance Barometer Study conducted by Life Happens and LIMRA found that the most common reasons people buy combination life insurance policies are to be cost-effective with their resources, to alleviate anxiety over long-term care expenses, and to avoid the cost of two policies.
The appeal in combination long-term care with life insurance continues to grow rapidly. In 2021, more than one-fourth of Americans said they would very likely consider a combination policy if they were looking for insurance.
Downsides
Although there are numerous benefits to a combination policy, it’s probably not for you if:
- You exclusively need life insurance. In this case, buying a regular term or permanent life insurance plan is your best option.
- You aren’t looking for permanent life insurance. If you only want temporary coverage, shop for term life insurance which is a lot more affordable.
- You don’t have $75,000 burning a hole in your pocket. Combination policies are best for people with “lazy money” sitting around. Although the benefits are incredibly rewarding, combination policies can sometimes be quite expensive.
Get Expert Advice Before Making A Decision
Purchasing life insurance is a serious part of one’s life. It’s important to evaluate all your options, and compare quotes from several insurers before deciding what route to take. Whether you have a plan in mind or not, our team of experts at Alltrust Insurance can help familiarize you with the pros and cons of a combination policy for your specific needs. We can help you navigate the complexities of life insurance to make sure you don’t make a regretful decision. For more information on different life insurance policies and long-term care insurance please contact us today!
