Long-Term Care Insurance 2.0: The Hybrid Policy

You have probably heard about the astronomical costs of long-term care such as nursing-home care if you become seriously ill or injured. It’s a common concern in my office – how will we pay for our care if we need long-term care due to illness or injury? You might already know that Medicare will only cover a minimal amount of those costs. Private long-term care (LTC) insurance doesn’t seem like a good bet either, if you’ve heard the stories about skyrocketing premium costs and difficulties in even obtaining LTC in the first place.  The LTC landscape has changed dramatically over the years since LTC insurance first became available.

There may be better options now. “Hybrid” policies essentially combine life insurance or an annuity with LTC coverage. The policy functions like standard whole-life coverage, but this type of policy will pay if you need nursing care. It can be a win-win. Say, for example, you buy a hybrid policy with a $200,000 death benefit. You eventually need $50,000 of that coverage to pay for LTC. When you pass, your beneficiary would receive a $150,000 payout from what’s left of the original $200,000 coverage.

Some plans offer tax-free death benefits to your heirs, if your LTC benefits are not fully used or needed. They may return your premiums if you change your mind down the road. Premiums can be locked in from the initial purchase date with a guarantee that they will never increase. Those who already hold a legacy policy with a large cash value may be able to roll that value over, tax-free, into a new hybrid policy.

For those who can afford to pay premiums in a lump sum in advance, LTC coverage could amount to as much as twice the face value of the policy. Compare that with simply setting money aside for LTC expenses at a rate of five percent interest. It could take as long as thirty years to save for what this policy offered on its face.

There is a wide range of coverage, depending on the policies. They may cover different services, or services delivered at-home, in a facility, or both. The monthly or daily benefits vary. Some policies require an elimination period (a delay between the time a doctor qualifies you for coverage, and actual payment) and some do not. Some provide inflation protection. Some provide adjustable rates, depending on how much the insured might need LTC as against the death benefit.

Always also remember that the carrier must have the long-term financial stability to pay claims, and to remain in business for decades to come.

More than likely, you will need an agent who has specialized experience in LTC insurance. Further, to sort through all these intricacies, the National Association of Insurance Commissioners has issued a free and comprehensive Shopper’s Guide to Long-Term Care Insurance (click here).

Elder law attorneys can additionally create a long-term care plan that incorporates a hybrid plan like this with an irrevocable trust that can protect assets (like your home) in the event you need long-term care. If you are interested learning more about these protections, I would welcome the opportunity to discuss your concerns further with you.