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Combining Insurance Products Can Be Useful if You Know the Facts

Sales of insurance policies that combine long-term-care with other forms of insurance are booming. But before buying, it's important to understand the possible drawbacks.

Insurance, in its many forms, has been referred to as the Swiss Army Knife of estate planning – providing cash just when needed, and for pennies-on-the-premium-dollar. A solid life and estate plan may include long-term care insurance for advanced health care needs, life insurance to cover at least your final expenses and even annuities to guarantee income. Rather than deal with two or three separate policies, there is a growing trend toward the use of combined insurance policies. However, before you buy, a recent Wall Street Journal article warns you of potential drawbacks.

Combined insurance policies come in a few shapes and sizes, but are generally based around long-term care insurance combined with a life insurance policy or an annuity. In the event that the policy holder requires long-term care, the funds come from the other component(s). Extra long-term care protection can often also be purchased.

These policies may be a good deal for some. As the Journal points out:

They allow those who don't use their long-term-care coverage to recoup money spent on premiums. Because many combined policies guarantee coverage at a set price, they also offer policyholders a way to hedge against the premium increases that have plagued holders of conventional long-term-care policies. Another benefit: For those in poor health, a combined policy may be easier to obtain.

Nevertheless, since the policies are combined, using one policy effectively nullifies the other. There will either be no death benefit or no more steady income in the respective policies if the policy holder needs long-term care.

Further, there may be other complications with a combined policy, depending upon your specific situation. Finally, these combined policies can be quite expensive.

You can learn more about long-term care insurance in the Long-Term Care Practice Center on our website. Be sure to sign up for our free e-newsletter to stay abreast of issues like these that could affect you, your loved ones and your estate planning.

Reference: The Wall Street Journal (July 31, 2011) “‘Combined’ Insurance Policies Grow

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