Long-Term Care Insurance 2.0: The Hybrid Policy
You have probably heard about the astronomical costs of nursing-home care if you become seriously ill or injured. You might also know that Medicare would cover only a minimal amount of those costs. Private insurance doesn’t seem like a good bet either, if you’ve heard horror stories about skyrocketing premium costs and difficulties in even obtaining long-term care (LTC) insurance in the first place.
There may be a better way. “Hybrid” policies essentially combine life insurance or an annuity with LTC coverage. (The benefits can be known as “accelerated death benefits” or “living benefits,” or the coverage can be called “life/long term care,” “linked benefits,” or a “combo” policy.)
This type of policy will pay if you need nursing care, but, if you never need that, then the policy functions like standard whole-life coverage. It’s a win-win. Say, for example, you buy a hybrid policy with a $100,000 death benefit. You eventually need $50,000 of that coverage to pay for LTC. Then, when you pass, your beneficiary would receive a $50,000 payout from what’s left of the original $100,000 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, delivered at-home, in a facility, or both. The monthly or daily benefits can vary. Some policies require an elimination period (a delay between the time a doctor qualifies you for coverage, and actual payment); 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.
To sort through all these intricacies, the National Association of Insurance Commissioners has issued a free and comprehensive Shopper’s Guide to LTC Insurance. It provides especially helpful shopping tips at pp. 31-36. Find the publication here
We can create a long-term care plan that incorporates a hybrid plan like this with an irrevocable trust that will protect all or some of your financial accounts and real property (like your home) in the event you need long term care. If you are interested in protecting your savings and your home, we would welcome the opportunity to discuss a plan that works for you.