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When Hybrid Long-Term Care Insurance Makes Sense

May 8, 2017

The prospect of debilitating illness late in life is not a pleasant one, but it’s wise to protect yourself and your family from the financial hardships that could result from it. A common way to prepare yourself is by purchasing some form of long-term care insurance.

Long-term care insurance works like this: You pay an annual premium, and if you need long-term care due to age or illness, the policy pays out a daily or monthly benefit. Some people look askance at these policies because, if they die without needing long-term care, they feel they’ve “wasted” the premiums.

As a way to counter that, so-called hybrid policies have become popular.  In the hybrid scenario, a policyholder would withdraw funds from the policy when they are needed for long-term care, and the insurance company pays for care when those funds run out. And if the policyholder dies without having needed expensive long-term care, the heirs receive a death benefit — therefore the premiums paid into the policy are not “wasted.”


What are the main advantages of a hybrid policy over a traditional long-term care plan?

Some clients can’t get past the “use it or lose it” nature of traditional long-term care insurance. It is emotionally difficult to buy an insurance policy that may cost $4,000 to $8,000 per year and will pay out nothing if you pass away in your sleep.


That is the nature of insurance, however — you pay money to protect yourself from a risk that you hope never happens. If you pay for 20 years on a term life insurance policy and walk away with nothing, you don’t wish you had died during that period. For some reason, though, many people think differently about long-term care insurance.  Unfortunately for some, it turns into the dreaded scenario....'Oh, I wish I would have bought that insurance!'  Too little, too late.


Hybrid policies offer three exit strategies:


1. You have money to pay for long term care debilitating illness.

2. There is a death benefit that is paid to your heirs when you die if you don't use the money for long term care, or a portion of the money.  The amount you don't use will be the inheritance. Leaving an inheritance is really important to a lot of people. They like knowing that some of the money they paid in premiums to the hybrid policy will be given to their kids.

3.  The last major advantage is that the benefits are guaranteed. If you pay your premiums (usually for 10 years or less), you will have a contractually guaranteed death benefit, guaranteed cash value and a guaranteed amount of long-term care coverage.

Traditional long-term care insurance policies, on the other hand, do not have these guarantees. In fact, insurers can petition the state departments of insurance to raise your premiums, sometimes as much as 50% per year. Some retirees with limited assets can’t afford these increases.


What are the main disadvantages?

Because hybrid policies do so many different things, they aren’t the best at any one thing.  Because the insurance company is offering so much long-term care insurance, it can’t offer great growth on the cash value or a great death benefit.



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