Hybrid Insurance Policies Blend Long Term Care & Life Coverage.

By October 8, 2019 Life Insurance
Hybrid Insurance Policy

One of the biggest mistakes people often make in their health and life coverage plan is assuming they’ll never need long-term care services, or that if they do need these services, they will pay for them with their savings.  Speaking from personal experience, my mother paid into a long-term care policy for many years, however the trigger for payment of benefits (loss of two or more Activities of Daily Living – ADL’s) only occurred in the last month of her life.  A better solution exists today: a hybrid Life Insurance Policy with a Long-Term Care rider.  This policy melds the two coverages together.

Here’s how these hybrid policies work:
  • You pay for a universal life or whole life insurance policy, which builds up a tax-deferred cash value, in addition to providing life insurance that will pay a death benefit to your beneficiaries after your passing.
  • If you need long-term care services, you can use a portion of the death benefit to help pay for the cost.
  • Depending on the terms of the coverage, a $500,000 life insurance policy might pay from $200,000 to $500,000 toward the cost of nursing home care, in-home care and/or assisted living expenses.
  • Your beneficiaries will receive any part of the death benefit that is not used to pay for long-term care expenses as life insurance proceeds.

This strategy may be done with a single upfront premium, a set of premiums for a fixed term, or ongoing premiums.  Many policies will lock in premiums at the start. The cash value is invested and liquid after surrender charges, and the policies generally will provide a fixed interest rate for cash value growth.

These hybrid policies try to eliminate some of the friction points of long-term care insurance, such as:
  • Premium hikes,
  • Limited benefit periods,
  • Worries that you may be rejected during the underwriting process, and
  • The fact that if you never use your long-term care coverage, you see no return on your premium.
Is it good for your situation?
  • A blended life insurance/long-term care policy costs more than a life insurance policy alone, but there are potential advantages that may make this additional cost worth it for your situation.
  • You have some earmarked, guaranteed funds to help pay for any needed long-term care services. If you don’t need long-term care services, your beneficiaries receive the non reduced death benefit.
  • In addition, universal policies typically charge a premium that is guaranteed to at least maintain the basic benefit, although it may not be enough to build cash value. That eliminates the problem of rising rates on long-term care insurance that prompt many people to shy away from buying this type of coverage.
If you decide to buy a blended life insurance/long-term care insurance policy, be sure you understand the long-term care benefits it would provide. Questions you may want to ask include:
  • Exactly what type of long-term care services would the policy pay for in-home care? Assisted living? Adult day care? Nursing home care?
  • How does the policy determine the amount of long-term care benefits it would pay? For example, does the policy pay a percentage of the total death benefit, or does it pay a percentage of the death benefit monthly?
  • Can you add inflation protection coverage?
  • Are there any conditions under which premiums could increase?
  • Is the policy tax-qualified, so that long-term care benefits won’t be taxed as income.

Every person’s needs vary, but if this type of dual long-term care and life insurance coverage suits your needs, you’re able to buy two types of insurance protection in a single policy – and with a single premium. Talk to one of our agents to find what coverage is best for you