If you are looking to understand traditional vs. hybrid long-term care insurance or you unaware of the two types of LTCI products, this article will bring you up to speed!
History of Long-Term Care Insurance
From the very inception of long-term care insurance, traditional long-term care insurance has been the most popular insurance option to pay for long-term care services.
It was introduced in the 1980’s as nursing home insurance but now covers services in a number of other facilities.
Today, a traditional long-term care policy typically works by reimbursing you for some or all of your long-term care expenses.
Generally, long-term care insurance policies pay benefits by the day, week, or month (i.e. a nursing home benefit of up to $250 a day or $1750 a week). In addition, these policies allow you to select:
- Your benefit amount (the available amount to pay for services)
- The length of your elimination period (the amount of days you wait before benefits start)
- The inflation protection option (an added feature to protect against the inflation of long-term care costs).
These policies are also guaranteed renewable. This means that your policy cannot be canceled at anytime if the premiums are paid when due.
Decline of Traditional Long-Term Care Insurance
Now despite the flexibility of traditional long-term care insurance, the biggest downside is the premiums are NOT guaranteed.
Therefore, insurance carriers have the right to raise premiums on a block of business at any given time. In addition, traditional long-term care insurance has lifetime premium payments.
This characteristic of traditional long-term care insurance helped contribute to its decline.
Premium Increases – Traditional Long-Term Care Insurance
You see, around the last decade or so, many long-term care insurers increased premiums drastically on in-force policies. This was due in part to misleading actuarial calculations and a low interest rate environment.
This increase to premiums soon caused traditional long-term care policies to receive a negative reception from both the policyholders as well as the general public.
Reputable publications such as the Wall St. Journal, Forbes, Barrons, & U.S. News & World Report all had something to say about the matter. They reported on the impact it hand on long-standing policyholders.
For example, the Wall St. Journal wrote an article stating “long-term-care insurers hit policyholders with steep rate increases that many never saw coming.”
Also Barron’s wrote an article headlined “Long-Term Care Insurance Is Getting Ugly.”
Forbes magazine noted that even the federal government hiked premiums by up to 83% for the long-term care insurance offered to their employees!
So what came of the matter for traditional long-term care insurance?
State Insurance Departments Combat Rate Increases
Well in 2014, some states developed a way to combat rate increases. A number of states adopted an insurance rate stability regulation. This regulation is based on a model recommended by the National Association of Insurance Commissioners.
The model regulation forces long-term care insurance plans to meet strict requirements if they want to increase premiums on their customers.
For example, according to U.S. News & World Report, if an insurance company requests a rate increase, they must first reduce the profit levels in their original pricing.
In addition, insurance companies can’t raise premiums simply to pad their bottom line. Premium hikes must go towards claims and customer service, not profits.
Unfortunately however, this added protection does not apply to all policies. It only applies to those policies that were issued after the state adopted the model regulation.
Therefore policies that were purchased prior to the model regulation are still subject to premium increases with little oversight from the state.
The Aftermath – Traditional Long-Term Care Insurance Today
Many companies have left the long-term care insurance marketplace since the rate increases. Many suffered losses on the product due low-interest rates and low lapse expectations.
Despite some carriers have discontinuing sales of new LTC policies, there were a few who were able to weather the storm.
For example, Transamerica still offers their traditional long-term care insurance and so does Mutual of Omaha. As a matter of fact, Mutual of Omaha offers a really competitive and useful traditional long-term care insurance policy.
Nevertheless, these recent events made Hybrid Long-Term Care Insurance the product of choice.
Hybrid Long-Term Care Insurance Now The Popular Choice
With the declining popularity of traditional long-term care insurance, hybrid long-term care insurance began to rise. Hybrid long-term care insurance addressed the short comings of traditional long-term care insurance.
So how does hybrid long-term care insurance work?
Well, Hybrid long-term care life insurance combines the benefits of long-term care insurance and life insurance into a single policy. Therefore it leverages your premium dollars to provide the following benefits:
- long-term care insurance to pay monthly long-term care expenses
- death benefit in the event you never need long-term care.
- access to cash surrender value in the event you change your mind
With hybrid long-term care insurance, your premiums are guaranteed never to increase and you can select the length of your premium payments (for example single pay, 10 pay, pay to age 65, etc.)
Guaranteed premiums allowed hybrid long-term care insurance to avoid the problems that plagued traditional long-term care insurance.
In addition, unlike traditional LTC policies, some hybrid policies offer a 100% cash benefit option. One product that comes to mind is Nationwide CareMatters II.
This gives you added flexibility in the sense you can use your long-term care benefits check on whatever you want, no questions asked. There is also no need to submit bills or receipts in order to receive your benefits.
Now let’s compare traditional vs hybrid long-term care insurance side by side.
Comparing Traditional VS. Hybrid Long-Term Care Insurance
Now that we have a better understanding of today’s long-term care insurance market, let’s compare the strengths of each product side-by-side
| Traditional LTCi Pros | Hybrid LTCi Pros |
|---|---|
| Most benefits per premium dollar Unique tax treatment for business owners and HSA account holders Premiums usually in the $2,000 to $3,500/year range | Guaranteed premiums and limited premium payments Death benefit if you don’t need long-term care services Return of premium options |
As we can see from the table, there are advantages to both products. For example, traditional long-term care insurance is considered “pure” long-term care insurance coverage. It offers the most benefits per premium dollar.
Also, traditional long-term care insurance generally has a lower annual premium than hybrid long-term care insurance. Premiums can typically be in the $2,000 – $3,500 per year range.
However, despite its strengths, traditional long-term care insurance has its shortcomings as I’ve previously mentioned.
Traditional long-term care insurance premiums are not guaranteed. Also, premium payments are typically due for the life of the insured.
In comparison, hybrid long-term care insurance premiums are guaranteed never to increase for the life of the policy. In addition, it offers limited premium payments such as a single pay or a 10-pay policy.
Also, while you may get the most benefits per premium dollar with traditional long-term care insurance, all your money has no return if you never experience a long-term care event.
With hybrid long-term care insurance, your premium(s) provide both long-term care and life insurance coverage in case you don’t need care.
In addition, you can always bank on getting a return of premium if you ever change your mind!
That being said, what can be concluded from all of this?
Conclusion – Hybrid Long-Term Care Insurance Is The “Guaranteed” Option
Considering the history of traditional long-term care insurance, it just isn’t as valuable as it was a few years ago. Many carriers have either raised rates unbelievably high or they have exited the marketplace altogether.
Mutual of Omaha is one of the few remaining carriers that still has a competitive advantage in the marketplace. They worked on keeping their rates reasonable and they still offer a valuable product.
Hybrid long-term care insurance on the other hand has picked up where traditional long-term care insurance has left off. It offers the guarantees and security that traditional long-term care insurance was lacking. In addition, it provides great coverage and options.
Of course the added protections hybrid long-term care insurance offers comes at a cost. However, it is worth noting that you are protected against the possibility of a long-term care event AND the possibility of never having one.
All in all if you are considering long-term care coverage, you should be taking a look at hybrid long-term care insurance.
Needless to say, some coverage is better than no coverage. Minus the added guarantees of a hybrid policy, Mutual of Omaha is still a viable option to protect against a long-term care event.
It is initially a low-cost way of having some form of coverage – even if the premiums are not guaranteed.
In any event, if you are considering a Hybrid Long-Term Care insurance policy or you want low-cost traditional long-term care insurance coverage, give us a call today!
Please call (800) 498-3955 for immediate assistance or schedule a call today using our form below!
