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Using Life Insurance for Long-Term Care

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One of the newest products on the market is a hybrid life insurance policy that provides long-term care benefits alongside a death benefit. This powerful duo is an affordable way to make sure you get the protection you need for care later in life while also ensuring your family gets a benefit—and you can afford both. But before you apply or exchange your existing life policy for a hybrid policy, let’s take a look at the benefits and drawbacks.

How Hybrid Policies Work

When you have a life insurance policy with a long-term care benefit, you essentially tap into the death benefit once you have a qualifying need for long-term care. It’s technically an accelerated death benefit so whatever you use on long-term care expenses ultimately reduces your death benefit. Anything left over is given to your named beneficiaries. Hybrid policies also accrue cash values, so you can still take tax-free loans and even surrender the policy at a later date.

The Benefits of Using Life Insurance for Long-Term Care

While benefits paid out on a traditional long-term care policy may be taxable if they exceed certain limitations, those paid out on a hybrid policy are not taxable—which allows your dollars to stretch even further. Another massive benefit is that the cost for this dual benefit is generally much lower than the cost of a long-term care insurance (LTCI) policy. Underwriting guidelines for this type of hybrid policy are also generally more favorable than they are for LTCI policies.

The Drawbacks of Hybrid Life Insurance

There are some drawbacks that need to be weighed against the benefits of a hybrid policy. First, because there are technically two types of insurance coverage, the administration fees may be higher in a hybrid policy. There are also surrender charges if you terminate the policy. Understanding these two drawbacks will give you a much better idea of what to look for when comparing the pros and cons for your individual situation.

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About Dennis M. Postema

Dennis M. Postema, RFC, is a successful entrepreneur, best-selling author, coach, speaker and registered financial consultant. He is the founder of MotivationandSuccess.com, StoriesofPerseverance.org, FinancingYourLife.com and TheRetirementInstitute.org.

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