Hybrid Long-Term Care-Life Insurance Explained
Hybrid long-term care life insurance combines the benefits of long-term care insurance and life insurance into a single policy. It leverages your payment(s) for two purposes:
- to create a substantially larger long-term care benefit pool to pay monthly long-term care expenses
- to create a life insurance death benefit in the event you never need long-term care.
Since these plans are generally permanent life insurance policies with a long-term care rider, they come with added benefits. For example, you can get desired coverage for a guaranteed premium amount. Also, you have the option to surrender your policy for a guaranteed return of premium if you ever change your mind. Here is an example of a Hybrid LTC-Life policy:
How does a Hybrid LTC-Life Policy work?
The way Hybrid LTC-Life insurance works is by using an “accelerated death benefit” in addition to a long-term care rider. The accelerated death benefit feature allows for the policy’s death benefit to be used while you are still alive. Therefore, in a hybrid policy, the death benefit is used to pay for your long-term care expenses. Once you have exhausted your death benefit, the policy uses the long-term care rider for the continuation of your long-term care benefits.
Benefits of a Hybrid LTC-Life Solution
Now from my experience, there are two common concerns folks have when first discussing long-term care insurance. They normally ask me:
- “Do I get my money back if I never need long-term care coverage?”
- “Will my premiums increase over time?”
Well if this is your concern, then a Hybrid LTC-Life policy is the right solution. First however, you should know that this type of plan is not for everybody. A Hybrid LTC-Life plan is, essentially, a want solution not a need solution. This plan is for people that want valuable coverage and guarantees that also meets the need to protect their family from long-term care consequences. This is valuable coverage and guarantees that come in the form of:
- Long-term care insurance benefits in the event you need care
- Tax-free life insurance death benefit in the event care is not needed
- A guaranteed return of premium if you ever change your mind
With such benefits, you will never have concerns for your policy like “use it or lose it” or premium increases.
Funding a Hybrid LTC-Life Insurance Policy
Hybrid LTC-Life policies are typically funded using previously acquired assets. For example, an individual might allocate a portion of their savings to fund a Hybrid LTC-Life policy. Sometimes people use funds that financial advisors refer to as “lazy money.” Those are funds that sit in an account not having any real purpose or any significant gains .
When placing fund(s) in a Hybrid LTC-Life policy, you are essentially making sure your assets will accomplish a useful purpose or be returned in the event you never use it.
Case study: Tom Jones
Let’s consider a case study to better understand long-term care planning using a Hybrid LTC-Life solution. (Tom Jones is a fictitious name we will use for case study purposes.)
Tom is a 60 year old male with a successful career looking to retire in the next 5 years. He has worked his entire adult life and has made some wise financial decisions during that time. Tom is glad to know that he has accrued enough assets to enjoy a comfortable retirement. However, Tom begins to recall what it was like caring for his mother who suffered from Dementia before passing away. Now that he is considering retirement, he is very concerned about what might happen if he ever needed long-term care. Below is a chart of Tom’s assets that he can use to pay for care:
Rather than pay for care out of pocket, Tom decides to reposition $100,000 of his assets into a Hybrid Long-term Care Life Insurance policy. The policy Tom selects leverages his single premium contribution to create a Long-term care Benefit Pool of $400,000 with a death benefit of $125,000 if he never uses it. In addition, if Tom changes his mind 6 years into the policy for example, he has a guaranteed a return of premium.
Hence, a Hybrid LTC-Life Solution works to keep Tom’s assets in tact. Tom will not need to liquidate his assets in the event Tom needs to pay for long-term care services. It creates a strong long-term care plan that gives him peace of mind. Therefore, Tom is left feeling confident as he continues in his habit of making wise financial decisions.
Is a Hybrid LTC-Life Solution right for you?
There is, what some would argue, a downside to funding Hybrid LTC-Life policies. There is a belief that it is better to invest your funds and use the interest gained to buy a traditional long-term care policy. If you are overly concerned about losing possible market gains on your funds than this product is not right for you. However, if your goal is the peace of mind knowing you have:
- Guaranteed long-term care benefits in place
- Guaranteed money back if you do not need coverage
- Guaranteed premium amounts
then consider a Hybrid LTC-Life solution.
Hybrid LTC-Life Insurance may be a solution you are interested in. However, you must know that there are multiple hybrid LTC-Life insurance products available. In addition, each product can be designed in a number of ways. Therefore, when a financial advisor presents you with multiple illustrations from different companies, it can be a bit overwhelming.
Before you consider or compare Hybrid LTC-Life insurance policies that may fit your needs, I encourage you to read our post “5 Things to Consider in a Hybrid Long-term Care Insurance Policy.” In it we discuss what 5 factors to look for when comparing Hybrid LTC-Life insurance policies and what to consider in a hybrid policy..
Nevertheless, if you are considering a Hybrid LTC-Life solution for your long-term care needs or believe a Hybrid LTC-Life solution is right for you, we are here to discuss your available options. Click the free quote button below or call us to start a conversation today!