Why Hybrid Long Term Care Policies Make Sense

The statistics are clear: the majority of Americans have chosen to ignore the high risk of needing Long Term Care in favor of taking on the risk on their own. A report from 2010 indicates that about 10% of seniors are covered. Whether it's spending down one's assets accumulated throughout a lifetime and ultimately going on Medicaid (state assistance - IE welfare), or whether the plan is more coherent, most Americans have chosen to eschew traditional Long Term Care Insurance policies in favor of rolling the proverbial dice. If interested in these types of policies, it's important to know, they're not all created the same. In our study on hybrid Long Term Care Insurance options, we found the differences in benefits to be hundreds of thousands of dollars in benefits.

Enter the Hybrid LTC Policy

There is a better way for many who do have assets, but don't like the idea of paying annual premiums for Long Term Care Insurance. The "hybrid" nature of these policies combine both a Long Term Care focused benefit as well as some vehicle to return premium if care is not needed during one's lifetime. The return of premium is often a multiple of the initial money placed in the policy, paid as a death benefit. The obvious allure here is that you are not left with nothing if you never needed LTC and paid premiums for 30 years on a "traditional" policy (non-hybrid).

The best hybrid policies on the market will have the same benefit triggers as a typical LTC policy, but are paid either as a single premium payment (often fully refundable virtually anytime) or as a guaranteed annual premium.

Guaranteed Out-of-Pocket Costs

Many types of insurance come with guarantees: term life insurance, for example, generally is a known premium for a known period of time. Long Term Care policies have typically not come with such guarantees, and many have in fact experienced rate increases (example 1) (example 2) over the years. Hybrid policies almost always have a guaranteed premium. Whether it's a single payment you make, a 10-year payment, or a lifetime annual premium, you can rest assured with virtually all policies in this realm that your premiums won't change. That peace of mind is worth a premium in the minds of many potential consumers, which has led to a wide interest in the hybrid LTC plan options.

[message type="info" show_close="false"]While premiums are guaranteed, they are often higher (or paid all at once) than traditional LTC plans. The guarantee, however, can be quite meaningful if you're worried about the future.[/message]

Death Benefit

Often the LTC benefit is many times the premiums paid, and the death benefit is 1.5-3 times the premium paid. This combination of dual benefits (again, this is the "hybrid" nature of the policies) is very attractive to many. There are often residual death benefits even if very large amounts of Long Term Care are needed, meaning that a policy may be able to act, at a minimum, as a burial death benefit.

Unlimited (Lifetime) Benefits Still Available

Starting in 2012, most of the insurers in the traditional Long Term Care Insurance market removed "Lifetime" benefits, where a monthly benefit would be paid for life with no restrictions. A policy of this nature may have paid, for example, $5,000/mo for the lifetime of the policyholder. Need care for 10 years due to Alzheimer's? That's $5,000 X 12 months X 10 years = $600,000 in benefits paid. The traditional LTC market all jumped out of this risk class and many companies have scaled back the maximum payout to be 5-6 years, but there are hybrid policies in many states that still offer a lifetime LTC benefit, meaning your potential Long Term Care payout could be millions of dollars in a catastrophic situation. For the moderately wealthy and above, this type of policy can also be an attractive hedge. A guaranteed premium for life combined with guaranteed benefits for life means one less headache.

Example Hybrid Long Term Care Policy Costs

There are dozens of so-called '"hybrid" policies on the market, many from major name-brand national insurers. As an example, we wanted to look at a typical married couple, both at age sixty years old, in good health. We set up a single premium of $75,000 per person, for a total of $150,000 single premium payment for the couple. We looked at three popular policies (from companies who are A+ rated but will remain nameless)

Input: $75,000 per person single premium

LTC Monthly Benefit:

In the chart above, the values are all fairly close age age 85, with a nod to the "Plan C" we ran for the highest available monthly benefit. So far, so good. The big difference in these plans is how much of a death benefit they will pay should LTC not be needed. There is a divergence of nearly $150k between the highest and lowest policies, as illustrated in the following chart:

Remember, these policies have the same single one-time premium payment!

• Company A: This $150k total premium sets up a second-to-die death benefit of $346,868. LTC benefit of $6,920 per person, (50 months total LTC payout).

• Company B:

  • Sets up, at age 85, a $89,693 death benefit, LTC benefit of $239,005, paid at $6,527/mo for the male.
  • Sets up, at age 85, a $90,674 death benefit, LTC benefit of $242,099, paid at $6,611/mo for the female.
  • Advantage: Slightly more LTC-heavy at age 85 (larger LTC pool) with a much smaller death benefit.

• Company C:

  • Sets up, at age 85, a $117,846 death benefit, LTC benefit of $229,687, paid at $6,193/mo for the male.
  • Sets up, at age 85, a $127,949 death benefit, LTC benefit of $267,975, paid at $7,225 for the female.
  • Advantage: larger death benefit than Company "B" with similar LTC benefit.

In all cases, there is no significant inflation protection benefits, which is a pretty big oversight if the 60-year old couple expects to live to, say, age 85 and use this.

Don't leave tens of thousands of dollars on the table and just take one advisor's recommendation on this type of policy. Speak with an independent qualified LTC specialist who can access not just a few plans, but virtually all plans on the market. These policies are very much a personalized decision. Our unique online process let us customize a plan quickly online for you.