What is Hybrid Long Term Care Insurance?
According to the US Administration on Aging, 70% of people turning 65 will need long term care services at some point in their lives.
Medical expenses for long term care can be devastating, so a good long term care insurance policy can go a long way in protecting yourself and your family against financial risk. It also gives you the peace of mind that comes from knowing that you will be able to receive high quality medical care if you have a long term care event in the future.
However, traditional long term care insurance products can be expensive, and insurance companies often raise the premiums on existing policies to the point where policyholders can no longer afford to make payments and have no choice but to reduce their benefits or cancel their coverage.
These premium increases, along with several other factors, have caused people to look for alternative solutions, such as hybrid life insurance/long term care products.
In this guide, we will be talking about hybrid long term care insurance products and the characteristics that set them apart from traditional LTC products.
Defining Hybrid LTC Insurance
Simply put, hybrid long term care insurance is a life insurance or annuity product that includes long term care coverage in addition to its usual functions.
Many people find hybrid policies more attractive than traditional LTC plans because they provide a full death benefit to beneficiaries if you never need to use the long term care benefits.
Hybrid long term care insurance is becoming more and more popular as traditional LTC policies have seen drastic rate increases in recent years. Companies like John Hancock have even pulled out of the traditional LTC market altogether.
Universal Hybrid Policies
Most hybrid long term care insurance policies are universal life insurance products that feature a ‘chronic illness rider’ or ‘long term care rider.’
This rider allows you to accelerate money from the death benefit if you have a long term care event. To be eligible to receive long term care benefits from a hybrid policy, you must be unable to perform at least 2 out of 6 activities of daily living (ADLs). These include bathing, toileting, transferring, eating, dressing and continence. Severe cognitive impairment is also covered (Alzheimer's, dementia, etc).
This is how hybrid policies work:
- You purchase a hybrid life insurance policy with LTC rider
- If you have a long term care event, you become eligible to receive benefits
- Money is taken from the death benefit to pay for LTC expenses. Monthly and annual limits are defined in the policy.
- Once the death benefit is exhausted, additional benefits may be paid according to the amount specified in the policy.
- When you die, your beneficiaries receive a partial death benefit (usually a percentage of the original death benefit).
Hybrid LTC Benefit Payout
There are two slightly different models for paying out LTC benefits. These are:
- Accelerated death benefit only - In these policies, the LTC benefits are taken directly from the death benefit and do not exceed the total amount of the death benefit. You can use all of the death benefit for long term care expenses, but your beneficiaries will still receive a guaranteed minimum death benefit when you die, usually a percentage of the original death benefit.
- Accelerated death benefit plus separate benefits - These policies are very similar, but they provide LTC benefits that go beyond the value of the death benefit after you use it up. In reality, though, these policies will have a lower total death benefit, which is something to keep in mind. Sometimes these policies provide better long term care coverage, sometimes they don’t. The rates will vary from person to person, which is why it's important to work with a knowledgeable agent.
Hybrid universal life products are funded with a single pay, 5 pay, 10 pay, annual or monthly premium, depending on the policy type.
Every company is different in the features they emphasize, the way they structure their policies, and even the way they pay out long term care benefits once you become eligible to receive them.
In addition to universal life insurance policies, there are several examples of whole life and term products that provide long term care coverage. These are not as popular as the universal products, but they may be worth considering for some individuals.
At Hybrid Policy Advisor, we will work with you to find the most competitive and highest quality hybrid policies to make sure that your future is secure. We understand the important differences between all the different companies and policy types, and we strive to make it easy for you to acquire the best available product and make the right decision.
Call us at 1-866-365-6558 to speak with an agent today.