The recent introduction of Hybrid Long-Term Care Policies is an attempt to address some issues associated with Traditional Long-Term Care Insurance (LTCI). With all the compelling reasons for purchasing Long-Term Care, sales of traditional LTCI are limited by the following two factors:
- Cost and Premium Increase. The cost of long-term care is significant. With the yearly cost of LTC services approaching $90,000, the typical annual LTCI premium is $4,000 to $7,000. Many insurance companies significantly raised premiums in recent years on their older, underpriced LTC policies.
- Lost Premiums and Investment Opportunities. For many people who never use LTC services, not only were premiums lost, but also opportunities to invest money spent on premiums.
Hybrid Long-Term Care Policies were a response to those concerns. They are linked together life insurance and long-term care insurance (Hybrid life/LTC); or, alternatively, a fixed annuity and long-term care insurance (Hybrid annuity/LTC).
Hybrid Long-Term Care Policies: How they work
Hybrid life/LTC is based on cash-value life insurance, such as whole, universal or variable universal life, complemented with LTC Rider. Clients specify in rider the amount of LTC coverage they want, and how long they want it to last (usually two to six years). They also need to decide if they need the inflation protection. Hybrid LTCI is typically funded with a single lump sum premium.
The trigger for the LTC rider is the same as for Traditional LTC – loss of two or more Activities of Daily Living (ADL) or a cognitive impairment. The cash value of the policy is the basis for available LTC benefits. All associated costs are deducted from the policy’s cash value and is tax free. The client has access to the cash value anytime, and available death benefits are the policy’s face value after subtracting the cost of used LTC benefits.
Hybrid annuity/LTC is similar to Hybrid life/LTC, except annuity benefits are used instead of death benefits.
The Pros of Hybrid Policies
- There is no more the question, What if I never need to use my LTC policy? The benefits are always available either in the form of death (annuity) benefits, or as LTC benefits.
- Unlike the traditional LTC insurance, the premium rates are guaranteed and cannot be increased in the future.
- The underwriting is usually less stringent than for traditional long-term care policies (it is true for hybrid annuity/LTC, not for hybrid life/LTC). Often only some serious illnesses like cancer are considered, and the client in poor health may get coverage.
- LTC claims paid directly from hybrid LTC policies are 100% tax free.
The Cons of Hybrid Policies
- Because of the single premium requirement, you should have the money and be willing to tie it up indefinitely. The minimum required amount is about $50,000.
- There is NO GUARANTEE that hybrid policies will pay the fair market value when the rates rise. This is no concern today with very low interest rates. But when rates ultimately rise, the people with hybrid policies may be at risk of losing out on opportunity of significant long-term returns. In other words, with the low returns of hybrid policies, the strategy “Buy LTC and invest the rest” may be the best, particularly with rising interest rates.
- Hybrid policies in general do not qualify for Partnership Programs, and therefore do not utilize their advantages
Let Liberty Medicare Help You Choose
Liberty Medicare is here to help you in all stages of comparing, selecting and enrolling in the best and most suitable Long-Term Care Plan for you.
All our services are absolutely free to you. We’ll help you:
- Find all plans available to you and compare their benefits
- Determine your eligibility (particularly if medical underwriting is required)
- Find the least expensive plan for your needs
If you are looking for Long-Term Care coverage let us help you. To view real quotes from Long-Term Care providers, please fill out our Long-Term Care Quote form, or give us a call at 877-657-7477.