Need Long-Term Care? A Hybrid LTC Policy Can Help
Updated: May 10, 2020 at 11:16 am
It is a fact: You will probably need some form of long-term care (LTC) (that is, custodial care) in the future. The Centers for Medicare and Medicaid estimate that 7 out of 10 people age 65 will need some type of long-term care (i.e., home health care, assisted living, or nursing home care.) If you are 50 or older (or a tad younger), you probably know of people who are dealing with the burden of caregiving for their parents or loved ones in LTC situations. We know caregiving can be one of the most excruciating situations in a person’s life. Maybe you are dealing with it yourself? Have you been thinking about your own long-term care yourself? What will happen if you need long-term care?
You probably are aware of traditional LTC insurance policies. Thanks to the Patient Protection Act of 2006, a new type of long-term care coverage emerged.
Known as hybrid long-term care policies, or asset-linked policies, this coverage makes insurance available for many consumers. In this article, we discussed the benefits of a hybrid LTC policy.
What Is A Hybrid LTC Policy?
A hybrid LTC policy is an LTC benefit attached to an asset. The asset is usually a permanent life insurance policy or an annuity contract. This is why they are called hybrids: you have a life insurance policy (or an annuity) in addition to the LTC benefit.
Contrast this with traditional LTC insurance, which has no asset value. If you don’t use the insurance, some policies allow a return of premium. This premium return usually is a percentage of your original contribution. For example, a return of premium feature might state that you will receive 80% of your premiums back. If you read our article on return of premium life insurance plans, then you understand that ROP riders can be costly and may not be in your best interest.
Why Are Hybrid LTC Policies Popular?
Simple. Traditional LTC insurance policies come with the stigma of a “use-it-or-lose-it” feeling. Most insurance is like this, right? Think of your home and auto insurance. You have these policies just in case (we hope!). These are “use-it-or-lose-it” policies, too. However, these types of policies don’t have the same magnitude of premiums as a traditional LTC insurance policy. Additionally, many consumers are aware of how fast traditional LTC premiums increased, making traditional LTC insurance seemingly unaffordable. While we at MFL insurance believe that traditional LTC insurance is still worth the money and rich with benefits, we understand the concern and frustration of many consumers. Many carriers left the traditional market, and only a select few remain.
The Pension Protection Act of 2006 encouraged the creation of hybrid LTC policy products by changing the tax structure of annuities and life insurance when in combination with LTC benefits. While we won’t go into the details behind it (trust us, you will snooze!), the changes are a benefit. Consumers now have another option to enter into an LTC coverage. Gone is the “use-it-or-lose-it” stigma. If you don’t use any of the LTC benefits, or even some of it, you will have an asset with a remaining, tangible value. Essentially, you will always have your premium. This gives consumers peace of mind. Their investment will be used for either a long-term care event or passed on to a surviving spouse or heirs through the life insurance policy or an annuity.
The Top 4 Benefits Of A Hybrid LTC Policy
We discussed the first one. No longer the “use-it-or-lose-it” stigma exists. Your policy, and your investment, will be used in one way or another.
Here are 3 more benefits of a hybrid LTC policy.
Benefit #2 – Flexible And Fixed Premium Payments
Depending on the asset, you can pay your premiums monthly, in lump sum, or over a certain number of fixed years – say 10 or 20. These policies are paid-up in full with no additional, ongoing premiums needed. Many annuity-LTC hybrid policies allow for ongoing, flexible premiums of lump sum. Moreover, some carriers have structured their policies to accept qualified money – i.e., money from retirement accounts such as 401(k)s and IRAs.
Moreover, your premiums will never change.
Contrast this with a traditional LTC insurance policy, in which you would need to pay monthly or annually for life. Additionally, traditional LTC insurance premiums have increased in recent years and could increase in the future.
Benefit #3 – Continuation of Benefits Available
If you need LTC services, the hybrid’s asset value will pay. For example, if you have a hybrid $200,000 life insurance policy with LTC and enter into an assisted living facility, you have $200,000 at your disposal to pay for the services. What if you need more? Luckily, many carriers and states allow for a continuation of benefits rider (an extension) that will extend your LTC benefit for an additional number of years.
Yes, it comes with an added cost. And, it is true: the continuation of benefits functions just like traditional LTC insurance. However, the cost of the extension is usually much less compared to that of traditional LTC insurance.
Benefit #4 – Underwriting Requirements
You may have heard that it can be hard to qualify for traditional LTC insurance. Our experience illustrates that, too. (But, it is not impossible to qualify for traditional LTC insurance).
Asset-based hybrid LTC can be easier to qualify because of the asset component to it. This doesn’t mean you will automatically be qualified. You still need to go through underwriting, but the underwriting can be less stringent than that of a traditional LTC policy. For example, annuities don’t require health underwriting. An annuity-LTC policy could include a few health questions and possibly a medical exam. In our experience, they don’t.
However, carriers still reserve the right to underwrite you any way they can. In our experience, the underwriting has been less stringent.
While we feel that traditional LTC insurance a good solution, hybrid LTC policies have made it easier for consumers to obtain this important coverage.
We know you and/or your spouse will need some type of coverage in the future. Now is the time to think about it. What works for you? The LTC insurance market can be confusing. Contact us for our professional assistance. We have certified long-term care specialist on hand that can design a policy that is right for you and your family, balancing both coverage and cost.
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