What happens if you don't use your long-term care insurance benefits?
Long-term care insurance is a financial planning tool that can help you pay for services like nursing homes, home health aides and more when you need them. And, if you purchase coverage, and need those services, this type of insurance may prove overwhelmingly valuable.
But, not all older adults will need long-term care - only about 70% do. And, long-term care insurance premiums can be costly.
So, what happens to the premium dollars you pay if you don't need care? Are you destined to lose the money you paid into your policy or is there value in long-term care insurance for those who never use it? That's what we will break down below.
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What happens if you don't use your long-term care insurance benefits?
What happens if you purchase long-term care insurance but never use it depends on a variety of factors. Keith Bercun, regional sales director for OneAmerica, a financial services firm, says there are several different long-term care insurance policies to choose from - and the type of policy you choose will play a role in what happens if you don't ultimately need care.
Hybrid long-term care insurance policies
A hybrid long-term care insurance policy is a strong option if you want to make sure you get value out of your policy whether or not you need care. "With hybrid long-term care policies that are considered asset based, (including) long-term care policies that are on either a life insurance or annuity chassis," there will be value for the insured in a variety of scenarios, says Bercun.
If you need to use your coverage for long-term care in your lifetime, "you're going to get tremendous leverage on your money," says Bercun. You may also decide that you'd like to stop paying for your long-term care insurance coverage. And, with a hybrid policy, you could still enjoy some cash value. "You could quit, and with nearly all hybrid policies, you'll get some cash value back," says Bercun. "If it's an annuity base, you'll get the cash value of the annuity minus any surrender charges." And, you could get all the money you've paid in back if you opt for a return of premium rider.
"If you never use it for anything and you die, you'll get a tax-free death benefit," that will be passed on to heirs, similar to life insurance death benefits, says Bercun.
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Traditional long-term care insurance policies
"Traditional long-term care insurance is just kind of like auto insurance or health insurance," says Bercun. "It is purpose built for one thing - to pay out for long-term care expenses."
So, if you choose a traditional long-term care insurance policy over a hybrid option, you may lose your premiums if you die without needing care. "If you ever want your money back, or you die, there is zero value whatsoever," explains Bercun.
And, you'll be priced out of your ability to maintain coverage with a traditional policy. That's because, "there's no protection against rate increases on traditional long-term care insurance policies," says Bercun. So, your premiums could rise over time.
The bottom line
Whether or not you get value out of your long-term care insurance premiums doesn't necessarily depend on your need for care or lack thereof. While that may be the case with traditional long-term care insurance policies, most hybrid policies give you value whether you need care, die without using your policy or even decide that you're not interested in paying your policy premiums anymore. Discuss your long-term care insurance options with an expert now.
