Alternative Options to Long Term Care Insurance
Long term care insurance does not come cheap, so it is unaffordable for many. There is another factor which deters many people from buying a long-term care insurance policy. That is, the possibility of not using the benefits during the life time - in other words, the premiums paid over all those years become useless.
In order to put these fears to rest, some insurance companies have brought out new or modified products which can serve the purpose of covering long term care costs and yet not be a total loss if unused.
Four Alternative Options to Regular Long-Term Care Insurance
Insurance companies have introduced the following four options which are different from the standard long-term care insurance policy but provides coverage for your expenses incurred for taking long term care services.
- Accelerated Death Benefit
- Combination of life insurance and long-term care insurance
- Life Settlements
- Viatical settlements
Accelerated Death Benefit
Life insurance policies give you a pre-determined death benefit to your beneficiaries after your death. The accelerated death benefit feature lets you take out a part of the death benefit while you are alive to be used for long term care costs.The insurance company may or may not charge any extra premium for inclusion of this feature. Usually, you are allowed to take out 50% of the death benefit but this percentage can vary.
Some features of accelerated death benefit option are -
- The policyholder has to be terminally ill in order to get the benefit
- 2% of the life insurance policy's face value is generally given as long-term care benefit
- The paid amount will be deducted from the original death benefit amount while disbursement of the death benefit
Accelerated death benefit option does not need any medical examinations for approval. So, people with pre-existing conditions or suffering from some medical condition can find this to be a good option for getting long term care coverage as compared to a standard long-term care insurance policy which may be impossible to qualify for.
However, this feature will not give you a large benefit amount like a regular policy would, since it is tied to the life insurance amount. Also, if there is no inflation protection with the policy, the benefit amount may fall too short when it is needed in the future.
Combination of Life and Long-Term Care Insurance
You can take out money from your whole life insurance benefit amount if you need money for long term care services. These are also called hybrid products. The amount taken out for long term care expenses is tax-free.
The next option to get coverage for long term care insurance is by selling your life insurance at its present value. The cash amount raised by the sale can be used to cover long term care services costs. This amount is subject to be taxed. This option can only be availed by men who are 70 or older and women who are 74 or older. After the sale of the insurance, there will be no death benefit left for your beneficiaries.
This can be used only when the policyholder is terminally ill and have a life expectancy of two years or less. The life insurance policy is sold to a third party which gives the policyholder a cash amount and later collects the policy's benefit amount after his death. The extent of life expectancy will determine the percentage of the pay out by the company - lesser is the life expectancy higher is the percentage. Know more [...]
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