Hybrid Long-Term Care Insurance

What Is Hybrid Long-Term Care Insurance?

A traditional long-term care insurance policy covers only long-term care expenses, while a hybrid long-term care insurance policy covers both long-term care expenses and pays a death benefit. There are various types of hybrid policies to choose from, such as a chronic illness or long-term care rider on a permanent life insurance policy, or a linked-benefit policy that combines a permanent life insurance policy with a long-term care policy. 

Hybrid long-term care policies are generally more expensive than traditional long-term care insurance policies because they include an investment component. With traditional long-term care insurance, if long-term care services are not needed, the premiums paid provide only peace of mind. However, with a hybrid policy, premiums can build a cash value, and if long-term care is not needed, the policyholder can withdraw the cash value or pass it along as a death benefit to beneficiaries. 

In recent years, hybrid long-term care insurance has become more popular than traditional long-term care insurance. This is partly due to the rising cost of long-term care and partly because people prefer to know that their life insurance premiums will ultimately benefit themselves or their beneficiaries in the end.

Long-term care insurance is no longer just a “use it or lose it” policy. With several hybrid long-term care insurance products available in the marketplace, it is important to compare all your options before purchasing long-term care insurance.

Daniel J. Adams, MBA, CFP®, CLU®Founder and President of CEG Life Insurance Services

As the founder of CEG Life Insurance Services, Daniel J. Adams has extensive experience with life and health insurance products. Daniel assists clients in building a secure financial future as a Certified Financial Planner™ professional and independent insurance agent. He also trains new agents and advises other financial professionals.

What It Covers

Hybrid long-term care insurance policies cover various non-medical long-term care costs, such as personal assistance with daily living tasks like bathing, eating or dressing. Depending on an individual’s needs, long-term care may also include assistance with other tasks such as housework, meal preparation or shopping. These services can be provided at home, in an adult day services location, or in an assisted living or nursing care facility.

It’s important to note, however, that long-term care insurance policies typically do not cover medical care such as doctor’s visits or medication.

Costs

Premiums for hybrid long-term care insurance policies are generally higher than those for traditional long-term care insurance. However, the exact amount of the premium will depend on the specific provider and policy that you choose, as well as your age, gender and health history. 

The younger you are when you purchase your policy, the lower your premiums will be, although you will pay them for a longer period of time. Additionally, premiums for single women tend to be higher than those for single men, as women are more likely to need long-term care due to their longer life expectancy. 

Some insurance providers offer discounts for paying your coverage in a lump sum, while others offer reduced pricing for combined coverage for couples. 

Tax Implications

Hybrid long-term care policies provide a slightly smaller tax advantage compared to traditional long-term care insurance policies. The portion of your premium that is allocated towards long-term care may be tax-deductible, depending on your employment status and health condition. It is advisable to check with your provider or tax professional to understand the specific tax implications of your policy. 

However, the benefits and payouts for hybrid long-term care policies are generally non-taxable.

Pros and Cons of Hybrid Long-Term Care Insurance

Hybrid long-term care insurance has benefits and drawbacks that you should be aware of. Here are some of them:

Pros

• Your hybrid policy will provide protection against future long-term care service costs.
• In addition to covering long-term care expenses, a hybrid policy also builds cash value that earns a return. You can use this value for other expenses or pass it on to your beneficiaries.
• Hybrid policies tend to be more flexible than traditional policies, giving you the option to choose how to pay your premium and how to invest the cash value.
• Unlike traditional policies, your premiums for hybrid policies generally remain consistent over time.

Cons

• Hybrid long-term care policies tend to be more expensive than traditional long-term care insurance or annuities because they include additional benefits such as a death benefit and an investment component.
• Hybrid policies can be complex compared to traditional long-term care insurance, so it is essential to understand the policy’s specifics.
• Tax deductions for hybrid policies are not as high as for traditional policies.
• Hybrid policies could have longer waiting periods before you can access your benefits when you first need them.

Hybrid Long-Term Care Insurance vs. Traditional Long-Term Care Insurance

Hybrid long-term care policies tend to be more expensive than traditional long-term care insurance or annuities because of the death benefit and investment component. Costs vary by insurance provider and are influenced by your age, health history and the amount of coverage you select. 

For instance, a 55-year-old man would pay an average of $2,100 per year for a traditional long-term insurance policy providing $165,000 in benefits that grows 3% annually. A similar policy for a 55-year-old-woman would cost $3,600.

On the other hand, a hybrid long-term care policy for the same 55-year-old man, with a 3% annual growth, would cost roughly $5,025 per year. A 55-year-old woman would pay about $5,975 for the same policy.

(Figures used with permission from the American Association of Long-Term Care Insurance)

Is Hybrid Long-Term Care Insurance Right for You?

More than half of adults over 65 will need some kind of long-term care support and service. When planning for a comfortable future, hybrid long-term care insurance may be right for you if:

• You can purchase a hybrid policy with a lump-sum (it’s often discounted that way).
• You don’t want to spend your savings or assets on long-term care but want peace of mind in case you need it.
• You’re not satisfied with the use-it-or-lose-it nature of traditional long-term care insurance.
• You prefer a more flexible policy that will allow you to leave any unused accrued value to your beneficiaries.

Whether hybrid long-term care insurance makes sense for you will depend on your personal circumstances. It’s important to weigh your options before making a final decision.