Term life and long-term care insurance plans can protect you and your family. The main goal of these plans is risk protection rather than investment. Purchase them while you are in good health and still able to provide for yourself and your family. Beyond these broad parameters, these two forms of insurance differ in many ways.
Benefits and Services Covered
Term life insurance is considered a death benefit, while long-term care insurance is a living benefit. Term life pays out a lump sum to your designated beneficiaries upon your death, and places no restriction on how the cash is used. On the other hand, LTC insurance reimburses you for eligible expenses related to your long-term care needs, such as nursing home stays, adult day care facilities and home health aides.
Who Needs Them
You need life insurance if you have dependents who require financial support upon your death. All parents with minor children should consider getting life insurance protection, advises financial author and TV host Suze Orman.
LTC insurance serves a different purpose---it helps you to afford high-quality long-term care needs without having to wipe out your assets. LTC insurance is not appropriate for everyone. Purchase LTC insurance only if you can afford paying the premiums over the lifetime of the policy. If you are about to qualify for Medicaid that covers many LTC services, you should not get LTC insurance.
Duration of Coverage
There is significant difference in the duration of coverage between term life and LTC insurance. The contract on term life expires after a pre-defined period of time that typically ranges from 5 years to 30 years. The term life policy is canceled when the term is up. In contrast, LTC has no such expiration. LTC policies are guaranteed for life as long as the premium payments are up-to-date.
Affordability
Term life insurance is one of the least expensive insurance plans relative to the payout. As of the end of 2009, a 40-year-old can get a $500,000 20-year term life insurance policy for about $400 per year.
In contrast, a middle-aged individual can expect to pay around $2,000 a year to get LTC insurance benefit worth about three years of nursing home stay. Because LTC insurance has no pre-defined expiration date, you cannot predict how long you will have to pay the premiums before you become eligible to receive a payout. If you fail to keep the premiums current at any point during the policy, you may lose your coverage and all the premium dollars you have paid thus far.
Payout of Benefits
According to EconomicExpert.com, only about 1 percent of term life policies pays a benefit because most individuals survive beyond the terms of their policies. In contrast, the Center for Medicare and Medicaid Services reports that as many as 60 percent of those over 65 years old will need some type of LTC, and that 40 percent of those over 65 will require nursing home care. Therefore, it is statistically more likely for you to receive a LTC insurance payout than for your beneficiary to receive your term life insurance benefit.
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