Weigh the many options with long-term care insurance

It's important to understand all your options when it comes to buying long-term care insurance. With so many alternative plans being offered today, a traditional plan may not be your best choice. It all depends on your needs.

A new client — let's call her Mary — came to me and transferred her mom's investment account to my firm. (Mary had power of attorney.) It was her mother's wish to leave Mary the money.

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Unfortunately, Mary's mom suffered from Alzheimer's, and the disease took a devastating toll on the account balance due to long-term care expenses.

Had she planned more carefully prior to the onset of her disease, Mary's mom could have left a sizable account to her daughter. This is why long-term care planning is so important: It allows financial obligations to be met and financial dreams to also be achieved.

Let's look at traditional long-term care insurance first so we can compare it to the alternatives. Let's say, for example, that you have a daily maximum benefit of about $150, a maximum benefit pool of about $219,000 and a maximum coverage period for four years.

It's important to note that if the benefit pool is used up or the coverage period lapses, the coverage will expire. Additionally, there are no death benefits with this type of insurance. A premium for this kind of insurance might run the person about $387.45 per month.

While traditional long-term care insurance does help cover long-term care expenses, it's typically a use-or-lose situation.

"The premiums can fluctuate over time," said Peter Huminski, president and wealth advisor at Thorium Wealth Management. "The insurance carrier may raise your rate on your long-term care policy as you get older."

"Many of today's hybrid policies, like life insurance that accelerates the death benefit for LTC needs, provide a benefit even if you never need long-term care." -Christopher Hammond, financial advisor at Retirement Wealth Advisors

That's the bad news. The good news is, there are other options. Let's take a look at some other options.

The so-called Legacy Optimizer alternative is certainly one to consider. This is life insurance with a long-term care rider. Here's how it works. The rider is an add-on to your life insurance policy — similar to adding directory assistance to your smartphone plan (except it's a whole lot more valuable).

You'll have a maximum daily benefit of $150 and a maximum benefit pool of $225,000. There's also a death benefit with this option of around $225,000. The coverage period is 50 months — close to the traditional long-term care insurance mentioned in the earlier example.

This universal whole-life policy allows acceleration of the death benefit to pay for long-term care expenses, and this strategy also provides a death benefit.

The premium? It's probably going to be around $327.17 per month. Compare that to the long-term care insurance — a savings of just about $60 per month.

There's another alternative, called the Income Plan with Long-Term Care Bonus. This is an income annuity with a single premium. This works differently than the previous two examples.

Say a couple puts a lump sum of money in at age 55. In this case, they might receive, for example, $2,300 per month after 10 years, at the age of 65. If they were to go into long-term care, there is a "doubler" benefit that would pay them $4,600 per month.

Another nice benefit to this strategy is that the maximum period of coverage in our example here is 60 months — better than the alternatives thus far. However, there is a large upfront cost: $350,000.

Keep in mind that this is only available for one payee regardless of the time frame that's used. Additionally, there's a two-year waiting period after the 10-year waiting period before the doubler can be used.

The last option is called the Hybrid Strategy. This one has a death benefit of about $150,000, a maximum daily benefit of $150 and a maximum benefit pool of $150,000.

"A lot of people don't like traditional LTC insurance because it is a 'use-it-or-lose-it' product," said Christopher Hammond, financial advisor at Retirement Wealth Advisors. "But many of today's hybrid policies, like life insurance that accelerates the death benefit for LTC needs, provide a benefit even if you never need long-term care."

Yes, you will get a death benefit — one that can be accelerated. The coverage will be about 33 months and the premium about $72,330.

The return-of-premium option is available on some of these policies, but it will cost someone their interest should it be utilized.

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This is one of the more affordable lump-sum policies, which may help folks hang on to much of their retirement account. When buying this kind of policy, look for a return-of-premium option, a spousal benefit and a lifetime rider option.

These long-term care insurance alternatives are worthwhile considerations, but sometimes keeping things simple is better. The ideal solution for almost everyone is to have a plain-vanilla life insurance policy and to have a plain-vanilla long-term care policy in place.

The key is to take your time, do your homework and pick an option that makes the most sense given your situation. Always consult with a financial professional if these options seem too complicated to decipher.

— By Jeff Rose, certified financial planner and founder and CEO of Alliance Wealth Management