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Ask Dave

Go Away, Gimmick!

Mel's wife just turned 60, and they were offered a universal life insurance policy with long-term care benefits. Is this something they should consider? Dave warns Mel off of this gimmick.

QUESTION: Mel in Nebraska is calling because his wife just turned 60, and they were just offered a universal life insurance policy with long-term care benefits. Is this something they should consider? Dave warns Mel off of this gimmick.

ANSWER: It’s a rip-off and it’s bad. You weren’t trying to buy life insurance, you were trying to by long- term care insurance. They start sticking this stuff together so they can stick you. You need life insurance like you need a hole in the head right now. If you have some money saved and she’s financially all right if you die, we’re worried about the nursing home eating your lunch.

We need to cover the nursing home. We need to cover in-home care in the event something happens. So all you need is a long-term care policy. I’d stay away from that other product; it’s a bad product.

Any time these insurance companies start packaging stuff together, it’s usually for their benefit. If they say you get your premium back, that’s called “return of premium” and they charge extra for that. If you take what you would have paid extra to get your premium returned if you don’t use it, and invest it, you’ll get your own premium returned. So again, they make money on that. It’s a gimmick.

Never do return of premium on any kind of policy, ever. It never works out mathematically for your benefit. It always works for their benefit. Otherwise, they wouldn’t be doing that crap. It’s yet another way they get you to supposedly save money with them. That’s not what we’re trying to do here—we’re trying to transfer risk. The risk of a nursing home and $30,000 to $50,000 a year cracking and scrambling a $300,000 nest egg. That’s all we’re trying to get rid of, and you need to do that.

I recommend you get with an independent insurance broker who will shop several different long-term care companies and get you quotes. If you are being told that benefits will be cut and rates will be raised down the road, you are being told that by the agent who is trying to sell you the universal life policy.

The number of people who enter the marketplace does not affect your price. Your policy covers your nursing home needs. That’s just bogus sales talk. You have to consider the source of where that came from. There are quality long-term care policies in the market that I would think are very trustworthy. I don’t endorse any certain company, and they may not be the best for you specifically, but the market leader in the whole discussion is John Hancock. Be sure you check them out on the long-term care.

But you don’t need to combine it with anything else. Some of the policies have good features like inflation riders, meaning the amount of coverage goes up a little every year and so does your premium every year. You’ve got some options that way to continue to stay with the increasing costs of health care. An inflation rider is a fair thing and something to consider.

But don’t get into the life insurance combined with long-term care insurance.