Types of Hybrid Long Term Care Insurance

Would you consider buying life insurance with an LTC rider?

Well, a lot of Americans are. Many LTC insurance agents have reported a sharp increase in hybrid plan sales compared to traditional long term care policies. Where people used to purchase traditional LTCI plans, more are going for the hybrid alternative. But what’s driving this increased demand?

Below, let’s look at the different types of hybrid policies available.

Annuities with LTC Coverage

A lot of Americans looking for hybrid alternatives to the old fashioned long term policies are buying fixed or deferred annuities. An annuity is a lump sum investment that is meant to provide a consistent, steady income stream during retirement. Given the current low-interest market, annuities aren’t looking very good now. Nonetheless, a long term care annuity can help you achieve your LTC planning goals.

The number one pro for LTC annuities is that they are quite less expensive compared to stand alone policies. Some various types of annuities do offer tax incentives for LTC benefits.

Other types of annuities allow you to invest premiums you paid for LTC so you can use them towards a regular fixed income. In the case LTC is needed, this means you get higher payouts. Indeed, you can double or even triple your LTC benefits this way.

If you don’t need the LTC benefit, the entire annuity can still be used by you or your beneficiaries.

The major CON for annuity plans is that they are subject to fluctuations in interest rates. How bad can that get, especially looking at the current low rates?

Note: some companies might allow you to switch an existing annuity into a hybrid package that has LTC coverage. If you’re considering purchasing a stand-alone annuity, you might also want to buy from a company that has this option open for you.

Hybrid LTC-life insurance policies

There are 2 different types of these policies:

  • Life insurance with Accelerated Death Benefit Rider – with this type of hybrid policy, the insured can pull money from their life policy whenever they need long term care. This effectively eats into their death benefit. To put it rather simply, it’s all about accelerating the death benefit. Typically, this is considered to be a free LTC Rider. Just a handful of insurance companies offer it just yet.
  • Life Insurance with an LTC Rider – with this type, LTC benefits are built into the policy itself, at an additional fee.

With the accelerated death benefit scenario above…

Be careful because some companies will only qualify your long term care coverage for just a percentage of your applicable death benefit. You receive monthly benefits, but it may result in an amount that’s insufficient to pay for care costs. Other insurers add a percent cap that says the maximum proportion of your death benefits that can be used for LTF should be no more than 50%.

Pros of Hybrid Policies

  • It’s a win-win situation. Either you the policy pays for your long term care, or your beneficiaries get a death benefit.
  • In the case you decide to cancel the policy let’s say after 10 years, you still get most of your money back. If you did the same with a stand-alone policy, you’d lose all the premiums you’ve paid so far.

Cons of Annuity and Life Insurance Hybrid Long Term Care Riders

When considering either annuity or life insurance with LTC rider policies, keep the following in mind:

  • If you’re using an annuity, thin about how the amounts used to pay for long term care will impact your remaining (retirement) income.
  • With a hybrid insurance policy, the money/amounts you get might not be enough to provide adequate coverage for your LTC needs.
  • Many hybrid policies have some form of inflation protection, but will this protection be adequate enough to keep at par with rising costs of LTC in future?

Bottom Line

Statistics say that 70% of us will need long term care sometime past the age of 65 years. That percentage is increasing by the year. Given this, everyone should have LTC coverage just to be protected from the potentially devastating costs. If you’re looking for help choosing an ideal policy for you, we can connect you to a virtual platform that allows you to compare packages from leading companies right from the comfort of your home. If you’d also want to speak to a seasoned long term care insurance specialist, we can also arrange for that.