Hybrid LTC Insurance: 6 Questions You Should Consider
Hybrid life insurance policies are a popular way to secure long term care coverage. Unlike traditional LTC policies, they include a premium guarantee and a death benefit.
Premiums on traditional policies can be highly unstable, so the premium guarantee that you get with a hybrid policy is quite a valuable feature.
At Hybrid Policy Advisor, we specialize in providing the best hybrid LTC policies to clients across the country.
If you would like to learn about hybrid policies, here are 6 questions to consider when shopping for hybrid long term care insurance:
1) Do you already own a permanent life insurance policy that has built up some cash value?
If you already own a life insurance policy that has some cash value, you may be able to use a 1035 Exchange to transfer that cash value into a hybrid policy. This allows you to fund a hybrid long term care insurance policy using cash value from an existing life insurance policy.
The gains on the current policy will not be taxed in the exchange, making this an ideal way to fund a new hybrid policy. Call us at 1-866-365-6558 if you would like to learn more and explore your options.
2) What kind of payment plan is right for you?
Hybrid life insurance with a long term care rider can be paid for in several ways:
- Single premium
- 5 pay
- 10 pay
One of the advantages of the single premium plan is that it includes a full or partial ‘return of premium’ option after a certain amount of time. This gives you the flexibility to take your money out of the policy if you decide you want to use it for something else.
3) Are the LTC benefits paid out on a reimbursement model or an indemnity model?
As a policyholder, it’s important for you to be aware of how the LTC benefits will be paid out. The reimbursement model is the most popular way for insurance companies to pay LTC claims. You pay for long term care expenses, send proof to the insurance company, and they will reimburse you for those expenses. All traditional LTC policies and most hybrid policies use a reimbursement model.
However, there are several hybrid LTC products that offer an indemnity payout model. If you qualify for the LTC benefits, the insurance company pays you the specified amount of monthly benefits directly. The indemnity payout gives you more freedom to decide how the funds are allocated, and there is no need to submit any receipts to the insurance company.
Not only does this give you more control over the money, but it also simplifies the process of receiving benefits.
4) Are the LTC benefits level or increasing throughout the life of the policy?
Depending on the way a particular hybrid policy is structured, the benefits will either increase over time or stay the same. There are two factors that determine whether the benefit is level or increasing: age and inflation.
- Age: In some hybrid policies, the LTC benefits increase as the client gets older. The numbers are based on mortality tables, and as your average lifespan decreases, the pool of available benefits gets larger. However, not all companies adjust LTC benefits according to age and it is a relatively rare practice in the industry.
- Inflation: Average long term care costs are rising every year. To protect against inflation, some hybrid policies allow you to purchase an inflation protection rider that assigns an inflation rate to the LTC benefits in your policy.
Is the inflation protection rider worth purchasing?
The inflation protection rider can add a significant amount of money to your premium, which begs the question: would it be better to forgo the inflation rider and instead use that money to purchase more coverage and keep a level LTC benefit throughout the life of the policy?
In general, the answer depends on your age at the time of application and the likelihood that you will have a long term care event sooner rather than later.
Our agents can help you work through these questions and decide on a strategy that is best for you.
5) Do you have access to 100% of the premium you’ve paid into the policy?
For single premium policies, some companies offer a 100% return of premium after a certain amount of time. Others offer only a partial return of premium.
Investing 100k into a single premium hybrid policy can be a significant financial commitment, so having the return of premium option adds a level of flexibility to your investment.
However, a hybrid policy is not a savings account, and you should only take money out if you are sure that you no longer need or want the LTC benefits in the policy.
After all, the point of buying a single premium hybrid policy is to secure an adequate amount of long term care coverage based on your age and health at the time of application. If you take the money out and surrender the policy 4 years after you bought it, you will be 4 years older and will find that it is significantly more expensive to get coverage on a new policy.
6) How does the hybrid LTC coverage compare to a traditional LTC insurance policy?
In many cases, traditional LTC policies can provide more LTC coverage than hybrids, but there are some significant drawbacks to keep in mind:
- The premiums on a traditional LTC policy are NOT guaranteed, and there is always a chance that the insurance company will raise your rates. If this happens, you will be forced to pay more in premiums, reduce your benefits, or cancel your coverage. With a hybrid policy, you can lock in a rate and not have to worry about future premium increases.
- With a traditional LTC policy, there is no death benefit and you must have a long term care event in order to collect anything from the policy.
At Hybrid Policy Advisor, we provide quotes for both traditional and hybrid long term care insurance products. We make it easy for you to see a detailed comparison of the most competitive products of each type and make an informed decision. Every client is unique, and there are many factors that we take into consideration when providing quotes and financial guidance.
To learn more about hybrid long term care insurance, call us at 1-866-365-6558, or fill out the online quote request form here.