Safety net? Insurance companies are offering plans that move beyond traditional long-term care. But do they really protect your assets?

Entrepreneur, May, 2005 by Scott Bernard Nelson

THE GLORY DAYS of long-term-care insurance--designed to protect you from the cost of late-in-life health problems--may be a thing of the past. Insurers have hiked up premiums for many policyholders in the past 18 months, half a dozen companies stopped selling new policies, and at least two exited the business entirely. Still, some companies are happy to sell traditional policies if you're willing to pay the freight, and an increasing number of insurers are mixing and matching long-term-care coverage with other financial products to provide new options.

The most common of the new twists involves long-term-care coverage with life or disability insurance. Variations are all over the map, but a simple example might involve a $500,000 life insurance policy with supplemental long-term-care benefits. If you die without needing long-term care, then your estate gets the full $500,000. But if you were to spend $100,000 for long-term care in the final year of life, the death benefit would drop to $400,000.

The combination policies address a primary concern with traditional long-term-care policies--that all those premiums disappear if you don't need the care. The thought of paying thousands of dollars for coverage you might never need turns off a lot of potential customers. Also, many combination policies are single premium, which means you make one upfront payment for the insurance and don't worry about price hikes later.

New ways to get long-term-care coverage are no magic bullets, of course. Like every financial product, they will work for some people and flop for others. They may work best for people who expect to have more assets than income during retirement. To pay for the single premium, you'll need a large lump sum up front. Traditional long-term-care coverage might work better for those with relatively high net worths and streams of income in retirement that can handle premium fluctuations.

Financial planning for long-term care is especially complicated for entrepreneurs who have spent their lifetimes building assets. So be wary of insurance salespeople pitching the next new thing, and go over all your options with an advisor you trust.

SCOTT BERNARD NELSON is deputy business editor at The Oregonian and a freelance writer in Portland, Oregon.