The 2006 Pension Protection Act made these types of policies more attractive from a tax perspective and we’re seeing them a bit more often. USAA does not currently offer such a “hybrid” product that combines long term care (LTC) with an annuity or life insurance policy. The hybrid approach draws interest because generally the cost of coverage is less than in a standalone long term care policy and there are, as you note, residual benefits for your heirs. As with any type of insurance, we would encourage you to shop around and, of course, understand exactly how your policy works.
Here are some basics of such a policy:
• LTC benefits are received as “accelerated death benefits.” This approach is similar to riders that have existed on life insurance policies for years that allow the death benefits to be accessed for someone that is terminally ill. In this case, the triggering event is not terminal illness, but the need for LTC.
• LTC benefit is based on the initial life insurance death benefit of the policy, in your case, $180,000. Normally, that death benefit is divided by 24-48 months to determine the maximum monthly benefit which may or may not be enough.
• The “extended benefit rider” may allow you (sometimes included or for an additional cost) to ensure that LTC benefits continue in the case your $180,000 is used up.
• Inflation protection is an important consideration. Understand your options. It may be that you are afforded the opportunity to increase the coverage by making an additional premium each year or the protection may be automatic. Depending on your age, this may be pretty critical.