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freeImagine being able to purchase auto coverage after you’d wrecked the car!  As unimaginable as that is, something quite similar is happening in the life and long-term care insurance world – and for once, we consumers get the benefit.

Traditional long term care is quickly going the way of the dinosaur.  Very few insurance companies offer coverage at all, and those who do have increased their prices dramatically in recent years.

Two reasons.  First is the rising cost of long-term care itself.  Second, because we’re living longer, the likelihood of us needing some sort of long term care is much higher.  In fact, 7 out of 10 of us will need long term care, making it a financial risk that we are foolish to ignore.

So what do we do when there are fewer products and increasing premium costs?

Well – it turns out that more and more life insurance policies allow policy owners to ‘accelerate’ some – or all of their death benefit in the event of a qualifying long-term care need.  Better still, most of them offer this added benefit at no cost until or unless you need to use it!  What a deal – it’s like buying car insurance after we wreck the car.

From the insurance company point of view, they’re simply ‘discounting’ a portion of the death benefit when you ask for part of it before your ‘life expectancy.’ But the discount is purely a financial calculation, not a ‘penalty.’

There are three other huge benefits to this kind of coverage.

  • First, the benefit is usually an ‘indemnity’ benefit – meaning the money can be used for anything. So if you’re unhealthy enough to qualify for the benefit, but healthy enough to travel, you could use the money to travel the world if you chose.  Traditional long-term care coverage is most often ‘reimbursement’ based – it can only be accessed to reimburse you for care related to the condition you suffer.
  • Second, because the benefit is considered an acceleration of the death benefit (and because death benefits pass free of income taxes), the money you receive is tax-free. What a deal.
  • Finally, because life insurance is ‘underwritten’ on the basis of mortality (the likelihood of death) rather than morbidity (the likelihood of needing to access a long-term care benefit), more people can qualify for life insurance than might qualify for long-term care insurance.

These ‘riders’ are common on permanent insurance, and some are even coming into the term insurance world.  If your life insurance policy is more than two years old, you probably don’t have these benefits, so having a conversation with your agent might be the smartest thing you could do in the next week.

In a world where all things financial seem to move against the little guy, here’s one trend that’s coming our way.