For many readers, the term “Long-Term Care” belongs in a foreign dictionary. Its an obscure concept that has very little relevance to them. At least until one of their parents faces the prospect of assisted living or perhaps something more serious. Or something unexpected and bad happens to you.

In the traditional sense, you can buy insurance to cover the extra cost of living. But like any insurance premium, there is a sense of waste if in fact you never need the coverage. Not unlike the feeling we get when we buy car insurance and reflect that last year we never filed a claim. Bummer.

A financial planner recently told me that he did not like to recommend that clients invest in a hybrid, linked-benefit insurance policy, one that pays you back if you never have a claim. He said it’s because he can accomplish so much more investing their money in a managed account. So I decided to test his theory.

Assume a female client at age 68 with $1million in a managed account that will average 8% for the next 15 years. (That’s a serious assumption these days) After taxes (20% average, yeah, right!), it will probably be worth about $3,122,000. Assume instead, she only invested $900,000 and put the rest in one of the hybrid contracts I referenced earlier.

In 15 years, her managed account will have grown to $2,810,000 plus $100,000 in the hybrid contract, $2,910,000 or $212,000 less in cash. If she dies at that point, her heirs will get the death benefit from the hybrid contract which would be about $180,000, for a total of $2,990,000 or $132,000 less than if all were invested successfully.

But if a need for long-term care occurs, she has an additional $5,000 per month of income from that $100,000 hybrid “investment” to help pay the bills, guaranteed for as long as she lives (but no less than for three years or $180,000); all income tax free. Compare that with the income available from each $100,000 in her managed portfolio. A long-term care event lasting several years could result in unlimited benefits totaling $1/2million or more.

This client has a 40% to 60% statistical possibility of needing some amount of long-term care….perhaps for several years. With a hybrid contract in her portfolio, her heirs can count on almost $5000 per month from her $100,000 hybrid account. And I haven’t deducted the annual premium she would have paid for traditional insurance from the above totals. That’s powerful!