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5 Things to Consider Before You Buy Hybrid LTC Insurance

So you’ve recently met with your financial advisor to do some long-term care planning. After the meeting, you decided a hybrid long-term care life insurance policy is right for you. At this point, your advisor sends you illustrations from two different companies for you to consider. However, you are not really sure how to determine which company is providing you the best offer for your needs and your money. What should you do?

Well, today we are going to show you “5 Important Things to Consider” when choosing a Hybrid LTC-Life insurance policy. To understand these factors better, we are going to use a case study of a person comparing Lincoln’s Money Guard II to Nationwide’s CareMatters for their long-term care needs.

1. LTC Benefit Amount (Maximum Monthly Benefit)

Hands showing the word benefit
Benefit Amount (Benefit Pool)

When you consider a hybrid long-term care insurance policy, one of the first things to consider is the LTC benefit amount. This is sometimes referred to as the LTC benefit pool. This is the initial amount available for long-term care expenses.

So let’s consider our case study for example: Tom Jones (a fictitious name used for our case study purposes) is a 60 year old male looking to put $100,000 of his savings into a hybrid policy. An advisor presents him with illustrations for Lincoln’s Money Guard II and Nationwide’s CareMatters.

When we look at the “LTC Benefit Amount” we see that a Lincoln policy will give you a LTC benefit amount of $400,000 while Nationwide will only give you a total long-term care benefit of $290,000.

Illustrations presented to Tom Jones for $100,000 Single Premium:

Illustrated benefit amounts (underlined in red) from Lincoln & Nationwide. Click for a closer view.

Tom’s $100,000 deposit will give him over $100,000 more in LTC benefits with Lincoln then with Nationwide. So right from the start we see that Tom is getting more bang for his buck with Lincoln than with Nationwide for the LTC Benefits. This is good to note as it helps us see that not every policy is created equal. $100,000 from Tom does not get him the same coverage amount from both companies.

Maximum Monthly Benefits

Even though a policy displays a total benefit amount, hybrid Ltc-life policies set maximum monthly limits when it’s time to receive claims. Therefore, your total LTC benefit amount is not paid out in a lump sum. Your LTC benefits will be paid up to the maximum monthly limit set in the policy.

Again let’s take our case study as an example. According to the Nationwide illustration above, Tom will only be eligible to receive up to $4000 in long-term care benefits each month if he chose the CareMatters policy. Whereas if he chose the Lincoln policy, he would be eligible for up to $5200 in LTC benefits a month.

Why is this important? Well let’s say the average cost of nursing home care in Tom’s state is $4,500 a month. Tom would not be able to cover his long-term care expenses every month if he chose the Nationwide policy. Not only would his monthly benefit fall short by $500, he also cannot access more benefit dollars until the next month as he has reached his maximum monthly benefit limit.

These maximum monthly benefits are not completely arbitrary. They are actually related to each policies’ benefit period which is the next important factor to consider.

2. Benefit Period

Hour glass filled with gold coins
Benefit Period – Duration of time you receive LTC benefits

The benefit period is the duration of time you receive your LTC benefit if the maximum monthly benefit is taken continuously. Typically, Hybrid LTC-Life policies offer a benefit period anywhere between 2-7 years. When considering a hybrid policy, it is generally a good rule of thumb to consider a benefit period of 6 years. According to the U.S. Department of Health and Human Services, the average duration of a long-term care event is 3 years but 1 in 5 Americans turning 65 today will need long-term care longer than 5 years. It’s better to be safe than sorry.

Let’s take our case study for example. Both Lincoln and Nationwide give their maximum monthly LTC benefits for a period of 6 years. This is easier for Tom’s comparative purposes. Now that we have covered a hybrid policy’s benefit amount and benefit period, it’s time to talk about the cost of long-term care in the future.

The cost of long-term care services is not “written in stone.” What happens if costs increase in the future? If you have what’s called inflation protection, the benefit amount in your policy can actually increase over the years to protect against inflation. Inflation protection is our third important factor to consider so let’s take a look at that.

3. Inflation Protection

Arrow pointing up with the word "costs" written on it.
Rising Costs (Inflation)

Another important factor to consider when looking at a Hybrid LTC-Life insurance is inflation protection. Inflation protection is a policy option that increases your benefits to cover expected cost increases in long-term care services. Inflation protection can increase policy benefits using two methods: simple or compound adjustment. If the increase is simple, the benefit amount increases by the same dollar amount each year. On the other hand, if the increase is compounded, the dollar amount of the benefit increase goes up each year. Here is an example of simple vs compounded inflation increase:

Simple Interest

Rate of InflationYear 1Year 5Year 10
3% Simple$100$115$130

Vs.

Compound Interest

Rate of InflationYear 1Year 5Year 10
3% Compound$100$115.93$134.39

As we see above, an inflation protection with compound interest will result in a higher LTC benefit amount as the years go by. In the case study of Tom Jones, the Lincoln Money Guard II product came with an inflation protection option of 3% compound interest while Nationwide was illustrated with an inflation option of 3% simple interest.

Illustrated inflation options (underlined in red) from Lincoln & Nationwide. Click for a closer view.

I often tell my clients “A dollar yesterday is not a dollar today.” Simply put, what a dollar may have bought you twenty years ago, for example, it may not buy you today. Consider the cost of candy when you were a child or gas prices when you first started driving. These items have definitely increased in price over the years.

Hence, when you are considering a long-term care insurance policy, it is best to consider that you may purchase a policy today at age 60 that you may not need until age 80! The cost of long-term care is projected to grow over the next 20 years. Imagine that the 2004 national annual median cost of a private room in a nursing home was about $65,000. Today that price has almost doubled as the national annual median cost is $100,000 a year!

Therefore it is in your best interest to consider inflation protection in your policy.

4. Elimination Period

Calendar sitting next to an hour glass.
Elimination Period ( Waiting Period)

A great question to ask when considering insurance is, “What is the claims process like?” More importantly, “How long does it take to receive my benefits if I go on claims?” When it comes to Hybrid LTC Life insurance, it is good to ask, “What is the elimination period?” The elimination period (sometimes referred to as waiting period or deductible period) is the amount of days you have to wait before your benefits start. During this time you must pay for covered services before the insurance company begins to make payments.

Common Elimination Periods

The most common elimination periods you see with Hybrid Long-term Care Life insurance are 60 or 90 days after you start receiving long-term care services. Normally, the process for claims requires you to receive certification from a Licensed Health Care Practitioner. This is to certify that you have a severe cognitive impairment or you cannot perform 2 out of 6 activities of daily living. From there, your elimination period must be met. For this to happen, you must be receiving qualified long-term care services stated under the Licensed Health Care Practitioner’s customized plan of care. Hence, if your elimination period is 90 days, you must be receiving these services for 90 days.

Let’s consider our case study again. For Tom Jones, who was presented with proposals from Lincoln and Nationwide, the elimination periods differ. Lincoln Money Guard II offers a 0 day elimination period which is great. On the other hand, Nationwide offers a 90 day elimination period.

Illustrated elimination periods (underlined in red) from Lincoln & Nationwide. Click for a closer view.

The daily cost of a nursing home in Toms area is $150 a day. If he opted for the Nationwide CareMatters policy, he would have to pay $13,500 before his policy will pay out benefits. In addition, you are not reimbursed for expenses paid during the elimination period. Since Lincoln has no elimination period, Tom would have access to his benefits from the day he needs care. Therefore, it is important to be mindful of the elimination period when choosing a Hybrid LTC-Life policy.

5. Premium Payment Options

Two road signs. One saying "Option A " with an arrow pointing right. The other sign saying "Option B" with the arrow pointing left.
Premium Payment Options – Single vs. Flexible

The next important option when considering a Hybrid Long-term Care Life insurance policy is premium payments. There is no good in considering a policy that does not work with your budget or financial needs. Policies today (some not all) give you the option to place single or flexible premiums into a hybrid policy. (An example of a single premium only hybrid policy is MassMutual’s Care Choice One.)This is good for individuals that want a hybrid policy but due to other financial interests, cannot allocate a single premium that will meet their LTC needs.

When looking at our case study, both Lincoln and Nationwide offer flexible premium payments. Both companies allow for a single premium or (for example) a 10 pay premium option. Typically however, when funding a hybrid policy, a single premium will provide more LTC benefits than if you did a 10 pay for the same premium amount. For example:

Lincoln Money Guard II single vs. flexible premium comparison

Single Premium
$100,000
Total LTC Benefits
~$400,00
10 pay($10,000 annually for 10 years)Total LTC Benefits
~$300,000

Therefore consider your premium options and what works best for you when picking a hybrid policy.

Conclusion

These are the 5 factors to consider when comparing hybrid LTC-life policies. When reviewing a hybrid long-term care policy, consider these factors first due to their importance. Please note, there are other factors to consider that play a role in the quality of the hybrid LTC policy you are reviewing. For example, look for any couples discounts. Some carriers offer a discount for being married even if only one spouse selects that policy.

Another thing to look for is the return of premium (R.O.P.) options. Some policies may perform better than others but only because they offer less return of your premium if you ever change your mind. If return of your premium is important to you, consider how much of your money you can get back when looking at a hybrid long-term care insurance offering.

All of the things discussed in this post are important when choosing any hybrid LTC policy. Therefore, before you place a portion of your savings into any hybrid policy, makes sure you are comfortable with all 5 factors in any given policy. If you want to view and discuss hybrid plans that meet your needs, reach out to us today! Click the free quote button or call us and start the conversation today!


Update as of May 13th, 2019:

Nationwide CareMatters has been revised and now offers added features. The new product is called CareMatters II. The illustration of the CareMatters product used for comparison purposes in this post is longer valid. However, “5 Things to Consider in a Hybrid LTC Policy” still stands as a great methodology to determine whether or not a hybrid policy is right for you. To see an unbiased Review of Nationwide’s CareMatters II click on the link or visit our Resources page.

To start a conversation about hybrid plans that meet your needs request a free quote or give us a call today!

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