Traditional vs Hybrid

Will you ever incur long term care expenses? Of course, nobody knows for sure, but statistics from the National Association of Insurance Commissioners suggest that about 70% of Americans over the age of 65 do. Increases in life expectancy and a sudden spike in the number of baby boomers retiring each day has seen increased demand for long term care services. Basically, there are 2 main types of long term care insurance policies:

  • Traditional policies
  • Hybrid Linked Benefit Policies

If you’re thinking about creating a solid financial plan for your future, it’s important to understand the difference between these two types of policies to establish what best is ideal for your situation.

Conventional Long Term Care Insurance

A traditional LTC plan is a policy that’s simply meant to cover your LTC expenses. You are able to select the benefits as you buy the policy, and premiums are usually serviced monthly, quarterly, or annually. Traditional insurance plans can be fine-tuned to your needs. As long as you’re paying premiums, your policy will be intact. You might want to think of a traditional LTC policy as being similar to a cash or property insurance plan. There’s no cash value, and benefits are only paid out after you make a valid claim. In this case, you’ll only receive insurance benefits if you’re unable to fulfill at least 2 out of 6 activities of daily living (e.g. eating, bathing, transference, etc.).

Since traditional long term care policies are highly customizable, you can choose the target monthly benefit, benefit period, waiting period and inflation protection you think works best for you.

Traditional policies are also subject to premium rate increases. Over the last couple of years, a number of companies have petitioned state insurance commissioners regarding increasing premiums for active policyholders.

Hybrid LTC/Life Insurance Policies

Traditional ‘pay-as-you-go’ policies are the most staple avenue for people looking to plan for their financial or retirement future. However, a lot of people are concerned about the ‘use it or lose it’ nature of these policies. They feel that in the case they never need long term care, their premiums go to waste. Hybrid long term care policies are a newer concept that eliminates the ‘use it or lose it’ scenario common in traditional policies.

A hybrid policy combines LTC and life insurance in one. That means that you either get an LTC benefit from the plan or a death benefit. It’s a win-win scenario. Hybrid plans are usually funded with a single one-time premium upfront (e.g. $50,000, $100,000, or $150,000). Many hybrid plans also allow you to select your benefits at the time of buying the plan. You can choose your monthly benefit, and choose the benefit period as well as inflation protection.

Another factor that makes hybrid LTC policies appealing is that premiums are fixed, with no possibility of future increases. Furthermore, you can get a 100% money-back guarantee if you change your mind somewhere along the way.

Which one should I choose?

There’s no one-size-fits-all when it comes to insurance policies. A traditional long-term care insurance policy might be ideal for one person, and unsuitable for another. Each policy ought to be judged on its own merit, after factoring in your custom needs. Most people tend to need a little hand-holding to choose the plan that’ll work best for their situation. If you want to get expert help choosing, we can connect you with seasoned professionals who have worked with thousands of Americans across different states.