Hybrid long-term care insurance combines long-term care insurance with the benefits of a permanent life insurance policy. It's an alternative to traditional long-term care insurance that guarantees some benefit from the premiums you pay, even if you never need the policy for long-term care.
How Hybrid Long-Term Care Policies Work
A hybrid long-term care insurance policy will pay out long-term care benefits according to the daily, monthly or annual amounts specified in the coverage you purchase. With this kind of policy, your total long-term care benefits can be higher than the amount of the life insurance death benefit.
Using the policy to pay for long-term care will reduce its death benefit. However, some hybrid insurance policies guarantee that, even if you deplete the long-term care benefits, they will pay at least some benefit. If you don't end up using any long-term care benefits, the policy will function like regular life insurance, paying a death benefit that equals most, if not all, of what you paid in premiums.
With some hybrid policies, you pay the premiums in a lump sum up front, while others allow you to stretch out the payments over a longer period. Unlike traditional long-term care insurance, hybrid policies enable you to lock in your premium when you purchase a policy, so it never increases.
Depending on the provider, it may be easier to qualify medically for a hybrid policy than for traditional long-term care insurance.
Is Hybrid Long-Term Care Insurance Right for Me?
How can you decide if this kind of insurance would be a good fit for you? A hybrid policy might be a viable option for you if:
- You need life insurance. If you already have a need for life insurance because you want people who depend on your income to have financial protection after you die, then a hybrid policy might be a good way to combine this coverage and address your own long-term care needs. If you wouldn't ordinarily need life insurance, a standalone long-term care insurance product might make more sense for you.
- Your financial legacy is stable. A hybrid plan might be a good option if your heirs would be financially protected even with a reduced life insurance benefit. Remember that there's always the risk with hybrid policies that the life insurance coverage you initially purchase will decrease because you need to claim long-term care benefits.
- You have other life insurance. Having additional life insurance coverage reduces the risk that long-term care payments from a hybrid policy will put your heirs at an economic disadvantage later on. If the death benefit of the hybrid policy is cut, they will still have other protection.
- You can afford the higher premiums. Data from the American Association for Long-term Care Insurance (AALTCI) shows that one sample company would charge a single, 55-year-old male $83,762 in a lump-sum payment for a linked-benefit hybrid policy with no inflation growth, providing up to $180,000 in long-term care benefits and up to $130,000 in death benefits. Premiums paid over several years would cost $3,625 a year. A single, 55-year-old female would pay $73,510 in a lump sum or $3,400 per year for the same coverage from that insurer. Compare those figures to the average $875 annual premium for a male and $1,350 for a female buying a traditional long-term policy, according to AALTCI.
What to Consider When You Choose a Hybrid Policy
Premium cost is not the only point to consider when you're selecting a hybrid long-term care insurance policy. You'll also want to figure out how the death benefit and long-term care benefits balance out. Some policies offer lower death benefits but pay higher long-term care benefits than others. You'll want to choose the option that best fits your most pressing needs.
It's also smart to confirm the method that the policy uses to pay long-term care benefits. A reimbursement model pays you for the actual cost of care after you receive it, whereas an indemnity model pays a predetermined cash benefit and offers more flexibility around how you use the money.
Lastly, you'll want to know whether the policy provides inflation protection. This feature makes it more likely that the policy will have enough value to cover future long-term care needs.
Hybrid long-term care policies offer a different way to approach long-term care insurance during financial planning. If you have written off traditional long-term care insurance, or you want to take advantage of unique features and financial planning opportunities, a hybrid policy that can protect you from unexpected health care costs and ensure a financial legacy for your loved ones may be a smart investment to consider.