Hybrid Long Term Care Policies
Hybrid Long Term Care Life Insurance Policies
There’s two types of long-term care insurance.
- Traditional Policies
- Hybrid Long Term Care Policies
They both are good options. But which one is best for you depends on your needs.
This article will focus on Hybrid Policies.
Hybrid long term-care life insurance policies combine long term care benefits with a life insurance policy.
What’s special about hybrid policies?
Most insurance policies only pay out if one specific thing happens. Auto insurance pays if you get in a car accident. Home insurance pays if something happens to your house.
Hybrid policies are a combination of 2 types of policies rolled into 1. That makes them unique because they pay out one way or another. They are guaranteed to pay out. Not many things in life have a guarantee like that, including traditional long-term care.
These policies can pay out in 3 ways: Care, Death, or change your mind
Care
If you need care, these hybrid policies pay a guaranteed tax-free long-term care benefit
Death
These policies are based on life insurance so they pay a death benefit if you pass away without needing care. That benefit is income tax fee to your beneficiaries.
Change your mind
What happens if you buy the policy today and change your mind in the future? Can you get your money back?
The hybrid policy has a cash value that gets returned to you if you decide to cancel the policy.
Benefits
You’ll notice the hybrid care benefits are similar to the traditional policies. You choose your benefits when you apply. This includes:
- Monthly Benefit
- Benefit Period
- Inflation Protection
- Waiting Period
Monthly Benefit
This is how much the policy will pay each month that you need coverage. Typical amounts range from $3,000 per month up to $12,000 per month.
Benefit Period
This is how long the coverage lasts. The minimum is 2 years. Most companies have a maximum benefit period of 6 years.
But there’s one company that has an unlimited benefit period. So they will pay as long as you need care.
Inflation Protection
Inflation protection increases your monthly benefit over time. Inflation protection is not required. If you decide to add it, then it increases your monthly benefit each year you have the policy.
Common options are between 3% and 5% benefit increases every year.
Waiting Period
Most policies have a waiting period before your coverage starts. With hybrid policies, the period is usually set by the insurance company. Most companies use 90 days.
Premiums
You have more flexibility with premium payment options for hybrid policies. Hybrid policies are often considered asset-based insurance policies.
- They can be funded with a one-time premium payment such as $50,000 or $100,000. Then you never make a premium payment again
- There’s an option for using qualified retirement money to pay for this. So you can make a one-time payment even if all your savings is in retirement accounts like a 401k or an IRA.
- If that’s not the right fit for you, they also have the option of making payments over a set time period. Options include time periods like 5 years, 10 years, 15 years, or until you turn age 95. If you take this route, it’s comforting knowing that these premiums are guaranteed to never change.
Why are these becoming so popular?
Hybrid long term care policies have grown in popularity over the last 10 years. Part of the reason for this is the number of guarantees they can offer.
- Premiums will never increase
- They will pay for care when you need it
- Provide a tax-free life insurance benefit to your beneficiaries if you don’t need care
- Offer you money back if you change your mind and cancel coverage without using the coverage at all
Hybrid policies are worth considering if you have assets that can be set aside for coverage. This could be in savings account, money market, brokerage account, or investments including traditional retirement accounts.
Quote Example
Hybrid policies can be paid multiple ways, but many people prefer to make a single payment. Here’s one example of why:
Let’s assume you are 65 years old and in pretty good health. Let’s assume that you have set aside $200,000 for long-term care needs.
Instead of keeping that $200,000 set aside for long term care, you could use half of it for a single premium hybrid policy. You make a onetime payment of $100,000 into a hybrid policy.
That frees up half of the money you have set aside for long-term care. Now you have an extra $100,000 you can use for other purposes anytime you choose.
And you have more than $400,000 in long term care coverage from the insurance company. So you have more long-term care coverage and more money available to spend now however you like.
But what if you pass away without needing care?
There’s a death benefit of $138,000. So $138,000 gets paid to your beneficiaries.
Here’s a few specific examples:
Example 1 – 65-year-old single woman
One hybrid coverage option would be:
- $6,000 monthly benefit
- Maximum benefit amount of $450,000
- 90 day waiting period before coverage starts
- The premium for this coverage is $8,418 per year.
- Or you can make a single payment of $108,000 and never make another payment again.
If you pass away without needing care, then the policy will pay a benefit of $150,000 to your beneficiaries.
Example 2 – 65-year-old single man
One hybrid coverage option would be:
- $6,000 monthly benefit
- Maximum benefit amount of $450,000
- 90 day waiting period before coverage starts
- The premium for this coverage is $7,485 per year.
- Or you can make a single payment of $100,000 and never make another payment again.
If you pass away without needing care, then the policy will pay a benefit of $150,000 to your beneficiaries.
Example 3 – 65-year-old married couple
One hybrid coverage option would be:
- $6,000 monthly benefit each
- Unlimited total long term care benefit
- 90 day waiting period before coverage starts
- The premium for this coverage is $12,347 per year.
- Or you can make a single payment of $162,000 and never make another payment again.
There is a big discount in premiums for couples getting coverage together.
If you both pass away without needing care, then the policy will pay a benefit of $150,000 to your beneficiaries.
Benefit Example
This policy can be used many ways but here’s 3 specific examples. Let’s stay with a $6,000 monthly benefit.
Home Health Aide
A person is no longer able to live at home independently. This type of policy could pay for a Home Health Aide to come to your house. So that you can stay home.
It’s common for home health aides to be there to help for 40 hours per week. The national average cost for a full-time home health aid is $6,292/month.
The Long-Term Care policy will pay $6,000/month for that Home Health Aide.
Assisted Living Facility
I had a client have a stroke at 67 years old. Very healthy and it came out of nowhere. She’s capable but no long able to live independently.
Assisted living is about $5,300/month.
The Long-Term Care policy will pay that Assisted Living Facility bill each month.
Nursing Home
If it’s a situation where you need around the clock care, then a nursing home is the typical location for care.
The national average for a nursing home is $8,669/month.
The Long-Term Care policy will pay $6,000/month toward the Skilled Nursing Facility bill each month.
So what’s the catch?
Most people feel like this sounds too good to be true. The insurance company multiplies the amount you paid for a long term care benefit. And they pay out a death benefit if you don’t need care?
Sounds too good to be true.
Opportunity cost is the amount you could have made with your money still invested. It could be a lot! Or it could lose money depending on how it’s invested.
People that buy this policy feel that the guarantees give them peace of mind. To them, that’s worth more than the unknown returns from the market.
Application Process
The application process starts with me. Together we review your health history and current financial situation. Then we will review suitable options for you.
Each insurance company has different requirements depending on your situation. Some will only need to do a phone interview. That interview takes less than an hour. That gives them enough information to make a decision about your application.
What’s next?
There are several companies that offer this type of coverage. If you’d like to explore your options, give me a call, or click the link below to schedule time for us to talk.