Long-term-care, life insurance policies offer solid coverage
by Danny Mensh
In the last feature, we discussed how important it is to review, shop and compare term life insurance rates. We learned that more often than not, association plans can be beaten in terms of cost, so it’s not always the best option to blindly trust a big name.
Over the years, much of our focus has been on protecting income and assets in the event of prolonged disability or death through long-term care, disability, and life insurance policies. Like most industries, the insurance world continues to evolve, and new products are developed to address client needs. One such major development combines long-term-care and life insurance.
But before I describe this blended concept, let’s quickly redefine the basics of both types of policies.
Life insurance is provided by an employer or is purchased personally in order for a benefit to be paid upon one’s death. Typically, a certain amount of a person’s income stream — as well as mortgage and other living expenses — will be insured to protect beneficiaries from lost income.
A person can buy a policy to protect himself or herself for a certain period of time, with a fixed premium during that time. There is no investment component necessary, and the policy is terminated at the end of the pre-determined time.
This type of coverage is less expensive than a permanent plan, which is designed to last for a lifetime and provide cash accumulation in addition to a benefit upon death.
It’s common for most employers to provide disability insurance, which is designed to protect lost income if you’re unable to work due to illness or injury. Typically, a group plan will provide a benefit equal to 60 percent of gross income to a maximum of $5000, $10,000, or $15,000 per month. The higher the limit, the more the plan costs for the employer.
If you’re self-employed or covered under a group plan, then a certain amount of your income might remain unprotected, making it advisable to secure an individual policy. This requires a medical history evaluation and review of tax returns to verify income levels. Remember that the likelihood of becoming disabled is significantly higher than death, so it’s imperative to be fully insured in this area.
This benefit, which is payable to offset the costs of home health, community, assisted living and nursing facility care, remains rarely available in employer settings but has steadily become more recognized. Most people incorrectly assume that Medicare will pay for long-term-care expenses. In reality, less than half of 1 percent of all long-term care is skilled in nature, and Medicare only pays for skilled long-term-care expenses.
One of the newer products available combines long-term-care and life insurance. In the past, one of the common objections from the public has been among those in the 30- to 40-year age range, which relates to the lack of guaranteed benefits from a traditional long-term-care policy. These newer, hybrid products allow an insurable 40-year-old to purchase a life insurance policy that will create a cash account to provide long-term-care benefits should a need arise. In the past, these products were expensive and didn’t provide much of either benefit. Therefore, financial experts routinely suggested that a prospect purchase a single long-term-care policy and then purchase a separate life insurance plan if necessary.
As an example, a 43-year-old female recently purchased a combined policy from a well-known insurance company. She wanted to protect against long-term-care exposure but didn’t like the idea of not guaranteeing that something would get paid to her or a beneficiary after years of premium payments. By putting $2,500 into the policy each year, more than $300,000 in life insurance can be split between her two children, and she can access almost $6,000 each month for almost eight years for long-term-care needs. If she uses the long-term-care benefits, then any of that amount is subtracted from the death benefit or life insurance portion. If she doesn’t use it, then the full life insurance payment remains intact. Either way, she’s protecting assets for her heirs.
There’s no reason to force an insurance policy where one’s not needed. It’s like my father, who was in the insurance business, used to say: “You don’t wear a policy or hang it on the wall, so you’d better love someone an awful lot to spend the money.” He’s right, and fortunately there are many efficient and reasonably priced products to fit varying financial needs and situations. Check to make sure your plans are as good for you now as they might have been when you first bought them.
About the expert
Danny Mensh entered the insurance industry in 1996 and became president of Mensh Insurance in 2007, taking over a family business that has been in existence since 1968. With more than 10 years of experience, Mensh is certified in long-term care and brings an independent approach to discussions concerning life and disability insurance for individuals and businesses. Planning topics range from protecting income due to disability or premature death to estate planning and preservation measures.
Mensh has appeared on radio and has filmed various educational programs on insurance issues, and has written articles in local and regional magazines on the topic. He received a Bachelor of Arts degree from Duke University in Durham and is active in the Duke Alumni Association in North Carolina. He also is a member of the National Association of Insurance and Financial Advisors, National Association of Health Underwriters, and American Association of Long Term Care Insurance. To learn more, call (336) 631-5503, e-mail firstname.lastname@example.org or visit www.menshinsurance.com.