Hybrid Whole Life Insurance and Long Term Care

[NewDay1]

Advice please.  Starting retirement planning "late" but I'm doing it now.  Mid-40s, no dependents (but have a young relative that I may be looking after and would put as a beneficiary).  A financial advisor presented me with a (hybrid) Whole Life Insurance with Long Term Care, that can be used for income later if LTC is not needed.  It's expensive.  LTC insurance stand-alone seems riskier with premium hikes and if you don't use it, you lose it.  Motivation for saying yes to this hybrid plan is primarily for LTC and then be able to use as income if LTC is not needed (as I don't feel totally confident in my investment skills to just put this money in the market).

Thoughts?  Thank you!

[gooki]

No. Don't do it.

Educate yourself.
http://jlcollinsnh.com/2011/06/08/how-i-failed-my-daughter-and-a-simple-path-to-wealth/

[FINate]

If you want insurance then buy term life insurance. But why would you bother since you're mid-40s w/ no dependents?

If you want investments buy VTSAX, or a Vanguard target date fund if you can't be bothered to learn the basics of asset allocation and rebalancing.

No point in mixing the two. Companies mix these not because there's some synergy that makes them more efficient together. They do it because they can make more money by complicating things and confusing customers. Whole life insurance is a rip off, there's a reason it's pushed so heavily.

If you're worried about LTC then buy it stand-alone *after* shopping around on your own. The whole point of insurance is that you hope you don't ever need it, but are glad you have it if you do. If you don't use LTC insurance that's a good problem to have. Attempting to recover some of what you've paid into it on the backend is not going to put you ahead. No sane company is going to sell a product or feature that they don't profit off of, and if they profit you're losing.

Dump the financial advisor. At best they are simply entering basic info into a program and following a script, and will take a hefty fee for doing so. At worst they will steer you into investments that are suboptimal, usually because they get commissions for getting people to buy certain products (or as they call them, "investments"). Again, you're the loser in this arrangement.

Learn the basics of passive investing which shouldn't take long because it's really quite simple. The Bogleheads' Guide to Investing is a quick and easy read that will get you started.

[NewDay1]

Thanks so much for the reply and perspective.  I'm new to MMM, and thought I would get an email that someone responded.  Oops!  I'm learning.  My concern with standalone LTC policies is that their rates are variable and I've read a lot of people have to quit them because the rates get too high.  Will research more, thanks again.

[Bicycle_B]

NewDay1, I think the question of long term care insurance is a tricky one, and well worth considering... after you've got the rest of your finances and lifestyle straightened out. 

In that the LTC might be worthwhile, I am in a minority on this board, where the general idea is "save enough to cover all likely expenses through your investment returns" and the usual attitude is "most insurance is usually a good deal only for the insurer".  Long term care can be very expensive.  It is not hard to imagine cases where care costs exceed normal living costs.  So saving enough to cover your normal expenses might not be enough to cover the case of expensive long term care.  My dad recently died of Alzheimer's so that gave me a concrete case to consider.

FINate's comment about "buy term life insurance" addresses a different category of insurance.  Like FINate, I assume that life insurance is not relevant to your case, assuming your stash is sufficient to cover the expense of an unexpected funeral, and you've named a trustworthy family member as the beneficiary on your financial accounts so they can access the money if you get killed in a traffic accident or something. 

Fwiw, I would go in the following order:
1. Say no to the financial advisor salesperson.
2. Build up prudent reserves (savings for unexpected events, eg car repairs, small medical issues, auto wreck, job loss, etc).
3. Pay debts, w/ possible exception of mortgage.
4. Invest in financial assets to get your retirement investments underway.
5. Examine, on your own schedule, the trade offs of LTC insurance vs no LTC insurance.  Buy it on fair terms by itself if and only if it makes sense to you for your case.

With lots of Alzheimers in the family, and 1 through 4 complete, I am on the fence.  Without such issues, I'd be in the LTC-insurance-no way-at-least-for-me camp.  The company can always raise rates and they only pay out so much anyway; though on the flip side, all of the multiple examples I know personally got very good results when LTC insurance benefits were needed.  You can re-examine the issue after the rest of your savings plans are in place.

[NewDay1]

@Bicycle_B - thanks so much for your thoughtful response and candid sharing of your personal experience.  I'm taking the steps you mention, and then I will contemplate the LTC question once other ducks are in a row. 

I admit, in my own research, I do like the very conservative "investment" aspect of a Whole Life Hybrid for the following reasons:

1. If the Life or LTC is not needed in the Whole Life Hybrid, there is a surrender cash value. Granted it would only likely earn less than 3% of my investment, and that would be after 20+ years of contributing. I could also pull cash out (at a loss before 20 years) at any time if I changed my mind about the plan.  But, it's still available cash and the only part that is taxed is anything I earned over my principal investment.  With a traditional LTC, it's like car insurance.  Don't use it, don't get any cash from it.

2. In the Whole Life hybrid, it is made very clear how high the total premium could go as there is a variable possibility with the LTC rate.  Thus, I know what I'm in for if the initial LTC component went up to it's max (vs. traditional standalone LTC plans that can change rates at any time, and I read a lot of people have to cancel because they can't keep up with premium increase - there's no way to plan for it).   

I welcome more feedback - thanks again!

[FINate]

1. If the Life or LTC is not needed in the Whole Life Hybrid, there is a surrender cash value. Granted it would only likely earn less than 3% of my investment, and that would be after 20+ years of contributing. I could also pull cash out (at a loss before 20 years) at any time if I changed my mind about the plan.  But, it's still available cash and the only part that is taxed is anything I earned over my principal investment.  With a traditional LTC, it's like car insurance.  Don't use it, don't get any cash from it.

What is the price difference between the two over 20+ years and how does this sum, if invested over the same time period, compare to the amount you get from Whole Life Hybrid if it goes unused?