Asset Based Long Term Care Insurance. How does it work?

Asset-based long-term care insurance is a type of insurance policy that combines long-term care coverage with an investment component, allowing policyholders to use their premiums to build cash value over time⁴. It is also known as hybrid long-term care insurance because it combines two different types of insurance policies into one⁴.

Asset-based long-term care insurance works by using either a life insurance policy or an annuity as the base for the long-term care benefits¹³⁴. If you need long-term care, you can access a portion of the death benefit or the annuity value to pay for your care expenses, tax-free¹⁴. 

If you don't need long-term care, you can leave the remaining death benefit or annuity value to your beneficiaries, also tax-free¹⁴. Some policies also offer a return-of-premium option, which allows you to cancel your policy and get back your premiums if you change your mind³⁴.

Asset-based long-term care insurance can offer some advantages over traditional long-term care insurance, such as:

• Guaranteed premiums: Unlike traditional long-term care insurance, which can increase premiums over time, asset-based long-term care insurance locks in your premium at the time of purchase, so you don't have to worry about future rate hikes¹³⁴.

• Cash value growth: Asset-based long-term care insurance allows you to earn interest on your premiums, which can increase the value of your policy over time and provide a higher benefit for long-term care or death¹³⁴.

• No use-it-or-lose-it risk: Asset-based long-term care insurance ensures that you or your beneficiaries will receive some value from your policy, whether you need long-term care or not. You won't lose your benefits if you never use them, unlike traditional long-term care insurance¹³⁴.

• Flexible funding options: Asset-based long-term care insurance can be funded with a variety of assets, such as cash, savings, retirement accounts, home equity, existing life insurance policies or annuities. You can choose to pay a single lump-sum premium or spread out your payments over time³⁴.

However, asset-based long-term care insurance also has some drawbacks, such as:

• Higher initial cost: Asset-based long-term care insurance typically requires a larger upfront premium than traditional long-term care insurance, which can be a barrier for some people who don't have enough savings or assets to fund the policy³⁴.

• Reduced death benefit or annuity value: Asset-based long-term care insurance reduces the amount of money that your beneficiaries will receive if you use your policy for long-term care. Depending on how much you use, you may deplete your entire death benefit or annuity value and leave nothing for your heirs³⁴.

• Limited long-term care benefits: Asset-based long-term care insurance may not provide enough coverage for your long-term care needs, especially if you need care for a long time or in an expensive setting. The amount and duration of your benefits depend on the value of your base policy and the inflation protection option you choose³⁴.

If you are interested in asset-based long-term care insurance or learning more about it, you may want to contact an independent agent who can help you compare different policies and find the best one for your needs and budget. 

(1) Asset-Based Long-Term Care | How It Works, Pros, Cons - Finance Strategists. https://www.financestrategists.com/insurance-broker/asset-based-long-term-care/.

(2) Best Long-term Care Insurance in 2023 | Retirement Living. https://www.retirementliving.com/best-long-term-care-insurance.

(3) The Asset-Based Long-Term Care Planning Toolbox - ThinkAdvisor. https://www.thinkadvisor.com/2021/07/09/the-asset-based-long-term-care-planning-toolbox/.

(4) What Is Asset Based Long Term Care? - SmartAsset. https://smartasset.com/financial-advisor/asset-based-long-term-care.