The cost of Long Term Care services has skyrocketed over the past few decades, making prior planning a necessity. As a result, premiums for long term care insurance have also shot up. This wiggy wagging has led to a situation where more Americans are looking for alternative planning vehicles. Hybrid long term care insurance has often been seen as a more dynamic solution for people looking to insure against long term care. This page introduces you to the most common frequently asked questions about hybrid Long Term Care insurance.
What is a hybrid LTCI policy?
This is a policy that combines a cash-value life insurance policy or non-qualified deferred annuity with a Long term care insurance plan in one policy. In the hybrid policy, the cash value of a life insurance plan is utilized to pay LTC premiums. In the case Long Term Care is ever needed, the premiums stop and LTC benefits are paid out.
What’s the history/source/beginning of Hybrid Long Term Care insurance plans?
The Pension Protection Act of 2006 was signed by the President of the U.S on August 17th. The statute focused on revising EO Tax Rules and enacted massive changes to tax law provisions. One of the areas that this act focused on was why so many Americans were reluctant to buy Long Term Care Insurance. Based on a survey, it was established that the majority of consumers were concerned about wasting premiums/money if they didn’t ever need long term care. The PPA effectively changed the IRS code so that dictated the tax treatment of distributions from life insurance policies and annuities used to fund LTCI coverage. This gave birth to hybrid long-term care insurance policies.
Do I need LTC and life insurance coverage?
Naturally, most Americans want to protect the people they love from financial distress if they die. Furthermore, folks don’t want to be a burden to their family in the event they’re not able to care for themselves. Based on a 2015 national survey conducted by Genworth, the average annual cost of at-home care involving a health aide is $45,000. A private room at a nursing home costs over $90,000 annually.
If you can afford, it might be better to purchase separate long term care and life insurance policies. Otherwise, a hybrid policy is ideal for consumers who need to minimize premiums. A hybrid policy allows you to receive benefits for long term care if the need arises, or leave an inheritance for your loved ones in the event of your death.
What’s the difference between traditional LTC and Hybrid LTC plans?
Traditional LTCI plans only pay benefits after a policyholder demonstrates the need for Long Term Care, usually through a certified medical professional. On the other hand, hybrid (life+LTC) plans will pay benefits if the policyholder demonstrates the need for Long Term Care, or as a death benefit to family members in the case of the policyholder’s death.
Are all hybrid long-term care policies the same?
No. Policies from different insurers can have significant differences. For an investment of $100,000, one insurer might pay out a death benefit of $193,000, and an LTC benefit of $8,000. For the same investment amount, another company might pay out a death benefit of $150,000, and monthly LTC benefit of $6,000. That’s precisely why it’s important to talk to a seasoned LTCI professional before you settle on any policy.
What’s more expensive, Traditional LTC or Hybrid LTC?
Traditional long term care insurance happens to be the cheapest way to purchase long-term care. Compared to other vehicles (such as hybrid LTC), traditional LTC is up to 4 times cheaper. For instance, if you plan to receive $6000 in monthly LTC benefits, you need to invest about $70000 in a traditional LTC policy, which is a massive deal compared to the $210,000 needed for a hybrid LTC, $268,000 required for universal life insurance inclusive an LTC rider, and $290,000 needed for variable universal life.
Compared to life insurance plans, and depending on the particular insurer, hybrid policies generally cost 5-15% more than they typical standalone life-insurance policy. Of course, the cost is much lower if you buy the policy when you’re young and healthy.
Why are hybrid LTC plans emerging more popular in the market?
Hybrid plans offer better flexibility, and that’s one of the reasons why they are proving to be more popular in the market. Unlike with traditional LTC plan, which envisages a use-it-or-lose-it scenario, hybrid plans allow your money to work in more than one way.
To put it rather simply, hybrid plans have a win-win situation. Either you use a part or all your LTC benefits, or someone gets a life insurance payments. This essentially eliminates the ‘what if I never need to receive long-term care’ concern that most critics of traditional LTCI have.
How do you trigger LTC benefits with a hybrid insurance plan?
To start receiving long term care benefits, you need to prove that you need help with at least 2 of 6 ADLs (Activities of Daily Living that include dressing, bathing, eating, etc.). Policyholders can also trigger benefits by demonstrating (through a healthcare professional) that they suffer from cognitive impairment such as Alzheimer’s disease.
How do insurers pay out benefits?
Depending on the specific policy, insurers may pay out benefits as reimbursement or indemnity. With reimbursement, the benefits paid out equal the expense of care. This means costs that are qualified under the contract will be reimbursed. Under indemnity, a cash benefit is offered. Once the policyholder starts receiving LTC care as defined in the contract, they receive a regular payment from the insurer. For instance, they might receive $3000 per month as a regular check in the mail. They then can distribute this money as they wish.
What riders do hybrid LTC plans have?
These are basically life insurance plans that have an added LTC rider. In addition, some LTC plans have a chronic-care rider as well. Such a rider means that in the case the policyholder suffers from a medical condition that i.e. expected to last for the rest of their life, then the insurer pays out benefits on an indemnity basis.
Is hybrid long term care insurance for everyone?
A two-for-one plan might seem very attractive, but keep in mind that these plans are not for everyone. Sometimes, you might be better off with a stand-alone product. Here’s why? Some hybrid plans might not include at-home care and protection for inflation. Others might not provide enough LTC coverage for your needs. It’s important to evaluate and judge each policy based on its own specific conditions.
Is a hybrid life insurance policy a good fit for me?
According to Neal Kerins, an assistant V.P in charge of insurance product management working for John Hancock Insurance, hybrid policies have the biggest appeal for individuals in their late 40s to early 70s who are worried about the devastating costs of long-term care. Neal Kerins says that the last thing people want to do is depend on their family for long term care. Additionally, they want a policy that enables them to leave an inheritance for loved ones after they die.
If you need a hybrid policy, you have to make that decision when you’re buying life insurance. It usually is not possible to add in an LTC rider later.
Are hybrid plans easier to qualify for?
Yes. Over the last few years, combination plans have become more popular because they are usually easier to qualify for. There is less strict underwriting, and there’s a promise of guaranteed payout. On the contrary, stand-alone LTC products tend to have stricter underwriting and are harder to qualify for.
What are the main benefits of hybrid LTC plans as compared to traditional policies?
If you buy a traditional LTC policy, what happens when you die before using it? All that money goes to the insurance company and your family doesn’t get even a dime. There’s an exception to some traditional policies that offer a refund. If you buy the hybrid life-LTC policy, you’re at least sure that the money will come back to your family through either LTC benefits or life proceeds if you die before using it.
Other major benefits of hybrid LTC plans include:
- LTC benefits received are tax-exempted
- Premiums paid for using an annuity or cash value of life insurance are tax-exempted
- Underwriting guidelines are usually more favorable
What are the disadvantages of hybrid LTC?
Critics of hybrid plans contend that if you make a policy do too many things, you’ll dilute each benefit. Policy dilution happens to be one of the most widely acknowledged disadvantages of combination plans. In some cases, the cash value of the policy is exhausted and you have to pay for the remaining Long Term Care with your money. To provide adequate coverage, the cash value in your policies needs to be quite large.
Another common disadvantage of hybrid plans is that the surrender period is lengthy, and involves significant surrender costs. Some hybrid plans also lack inflation protection.
If what you’re looking for is pure LTC protection, then a hybrid policy might not offer you the comprehensive LTC benefits you’re planning for. It’s all about evaluating your needs and choosing a product that best serves your future planning.
Are there any chances that premiums might increase?
Unlike traditional policies, which are prone to premium increases, hybrid LTC plans have a fixed rate with no chance for future rate increases.
Are there situations when a stand-alone policy is better than a hybrid long term care policy?
If you do not have any dependents or have sufficient assets that your loved ones can rely upon, then you may not need any life insurance. If you don’t need life insurance, you’re better served by a standalone long-term care policy.
Are there health qualifications for hybrid (life+LTC) plans
Yes. Although hybrid plans have less stringent underwriting, most of them still have needed healthy qualifications. A section of hybrid plans have what’s called ‘simplified health underwriting’, which could be advantageous in that there’s no medical exam required, and no medical records are obtained. Usually, all that’s needed is a telephone interview with a nurse.
Important: If you have any existing health conditions or do take medications, it is crucial that you speak with a seasoned Long Term Care insurance specialist before you buy a traditional or hybrid plan. Some insurers ask ‘Have you been declined for coverage with another carrier’. Answering YES to that question essentially makes you less insurable and increases chances that your case will be refused.
I need to buy a hybrid LTCI policy, how do I get started?
If you have already decided to buy a hybrid life and LTC insurance policy, it’s important that you shop around first. There are dozens of insurers who are selling significantly different packages in the market right now, and the variety of options can be overwhelming. Since each policy should be judged on its own merit, doing your homework first is a great way to not only find the best deal but also make sure that you’re buying from a company that’s gonna be around when you need the benefits (which might be about 20 years out). With no affiliation to any insurance company whatsoever, we can help you compare packages right from the comfort of your home. You can receive detailed proposals from about 5 blue-chip carriers without wasting an hour of your time sitting in the kitchen talking to a local agent.
If your situation needs further help, we can contact you to a seasoned hybrid long term care professional. Simply send us a mail via the contact form on this website. We’ll be sure to respond back within 24 hours.
How can I find policy costs or get more information?
Need more information regarding a specific or variety of policies? Our information department can acquaint you with a professional insurance specialist who can take you through the process of isolating your risk, and consequently selecting the best policy terms. Get in touch with us here.
