Hybrid Long-Term Care Policy

Hybrid LTC Overview

Hybrid Long-Term Care Insurance

When someone passes away suddenly, a conventional life insurance policy pays out the death premium to the beneficiaries. However, some laws have riders that allow you to use the death payout to help you financially while you are still alive. Long-term care insurance plans with a dual rider incorporate a long-term care rider with a conventional life insurance package to provide for your care if you are unable to survive alone. The payout can be used to pay for at-home services, such as assistants or assistants, or a stay in a nursing home. 

While a hybrid long-term care insurance policy is more expensive than standard term or full life insurance, it can be an important aspect of estate planning for certain families. While not everyone requires it, if you plan to leave your wealth to your beneficiaries and can afford it, a hybrid long-term care insurance policy can help you from depleting your savings to pay for medical treatment. 

According to the US Department of Health and Human Services, more than half of Americans aged 65 and up would need long-term care services at any point in their lives. However, many people dislike standard insurance and they can’t get around the plans’ “use-it-or-lose-it” clause. Standard long-term care insurance requires you to pay premiums for the rest of your life and only claim coverage if you need long-term care. You won’t get any benefits if you don’t need treatment.

What is a Hybrid Long-Term Care Policy and How Does it Work? 

Asset protection is a term used to describe a hybrid long-term care strategy. Its aim is to ensure that the expenses of your treatment do not deplete your wealth and that your descendants collect their inheritance when you pass away. 

Hybrid plans incorporate conventional life insurance and a long-term care rider, which pays out if you’re still alive if you can’t care for yourself and need clinical assistance. If you use a long-term care rider, the funds required are deducted from your death insurance and instead charged to the support providers, such as a nursing home or at-home care provider.

You must meet the insurer’s definition of injury to be eligible for the long-term care rider, which normally means you can’t independently handle two of the six tasks of daily life (or ADL).

Below are the six regular activities: 

  • Bathing 
  • Eating or drinking
  • Putting on clothes 
  • Getting from one place to another 
  • Using the restroom 
  • Maintaining of bowel or bladder continence

Although the long-term care rider deducts from your death payout to offset assisted living expenses, it would not cover costs that may otherwise be protected by your health benefits, such as hospital appointments, medications, or surgery.

Benefits of Hybrid Long-Term Care Policies

A combination life insurance policy with long-term care coverage is a newer alternative. Health insurance and long-term care insurance are combined with these plans. 

A hybrid long-term care policy is advantageous in two ways: 

  1. Benefits of long-term care: When you need long-term treatment, you will use a portion of your life insurance policy’s death payout to help cover for medical and non-medical costs associated with daily care, such as eligible home care or assisted living. 
  2. Benefits for loved ones from life insurance: Unlike conventional long-term care plans, your loved ones will enjoy the death payout in full if you never exploit the policy’s long-term care provisions.

If you have the policy’s long-term care benefits, a part of the death premium is paid to your loved ones. The bottom line is that a hybrid life insurance policy can return value in some form or another.

Long-Term Care Insurance

Long-term care is a generic term for a wide variety of facilities that people will need whether they’re seriously ill or have disabilities. Services usually provide personal care or other facets of daily life, according to the Department of Health & Human Services. 

Generally, people qualify to seek long-term care insurance coverage because they’re unable (temporarily or permanently) to independently perform at least two of six tasks of daily life. The onset of a severe cognitive impairment, such as Alzheimer’s disease, may necessitate long-term care.

Choosing care can range from simply hiring someone to help you get ready in the morning to paying for a nursing home room and board. Your care costs are determined by the services you require. According to national averages, a month of care can cost anywhere from $1,562 for adult day care to nearly $7,000 for round-the-clock nursing facility care. A long-term care event typically lasts two to four years.

It can be difficult to pay for these services. Long-term care is not covered by health insurance. Part A of Medicare may cover a portion of the cost of a stay in a nursing home or rehabilitation center, but only for up to 100 days and only if the patient’s health is improving. In order to qualify for Medicaid, you must meet certain income and asset requirements. 

The only remaining options are to pay for services with your savings or assets, 

buying long-term care insurance or relying on family members for care.

The Value of a Hybrid Long-Term Care Insurance Policy

You must first determine whether long-term care insurance is appropriate for you before purchasing one. Your financial advisor can explain how long-term care insurance fits into your overall financial plan, as well as the various products available. 

Hybrid life insurance policies with long-term care coverage are generally more expensive up front than traditional long-term care policies, but you’re guaranteed to get some value back. Recent sales figures also appear to indicate that more people are interested in hybrid long-term care insurance policies. 

An insurance industry marketing research firm stated the number of consumers purchasing a hybrid life insurance policy with long-term care coverage increased by 50% between 2012 and 2016 (the most recent data available). Traditional long-term care insurance sales fell by nearly 60% during the same time period. 

A hybrid policy safeguards your family while also providing long-term care coverage in the event that you require it. Other advantages of hybrid life insurance over traditional long-term care insurance include:

The policy can be used to help with estate planning

Loved ones can receive a partial or full death benefit from hybrid life insurance policies. In most cases, the death benefit is tax-free. Furthermore, long-term care insurance can help pay for medical expenses that would otherwise deplete the financial assets you hoped to leave to future generations.

It’s a straightforward way to set aside funds for long-term care. 

Long-term care coverage is included in your policy if you need it. That coverage ensures that you can live the retirement lifestyle you want. Keeping in mind that if you need long-term care, you won’t have to spend all or a large portion of your retirement savings on it.

You will not have to pay insurance premiums for the rest of your life. 

A hybrid life insurance policy can be paid in full up front or over time with a payment plan. These “multi-pay” plans may allow you to spread the cost of your policy over a period of time.  After you’ve made those payments, you won’t have to make any more for the rest of your life. Traditional long-term care insurance policies, on the other hand, may require you to make annual payments for the rest of your life. In some cases, even after you start receiving benefits. 

According to a 2015 study by Boston College’s Center for Retirement Research, more than one-fourth of people who buy traditional long-term care policies at age 65 eventually stop paying. When a policyholder stops paying premiums, regardless of how long they’ve had the policy, they lose the entire premium as well as their long-term care benefits. However, non-forfeiture options may be available.

Your insurance policy has a set price. 

Your required premium amounts are known with a hybrid life insurance policy. Even if your health improves, your rate may never rise. Annual payments on traditional long-term care insurance are not guaranteed to remain constant; they may rise. Traditional long-term care insurance premiums continue to rise on a regular basis. One of the main reasons people stop paying their premiums and stop buying traditional long-term care insurance policies is unexpected rate increases.

You can get some of your money back if you change your mind. 

Some hybrid life insurance policies provide a premium refund. If you decide that you no longer require or desire the policy, the insurer will refund a portion of your initial payment. The amount of your refund is determined by the rules of your insurance company and the length of time you’ve had the policy; however, the return of premium feature should be clearly stated in your insurance contract.

Traditional insurance policies are always reimbursed, whereas hybrid insurance policies can be reimbursed in either case.

Indemnity Benefits

When you qualify for long-term care benefits, indemnity benefits set a monthly benefit amount and pay it in full. If you buy $5,000 in indemnity long-term care benefits per month but only have $3,000 in long-term care expenses per month, the policy will pay you the full $5,000 that month. You can spend the extra $2,000 in any way you want.

Reimbursement Benefits

Getting reimbursed once you qualify for long-term care benefits, you will be reimbursed only for the long-term care expenses you have incurred. In order to receive reimbursement, these expenses must be qualified.

For example, if you purchase a $5,000 per month reimbursement benefit but your long-term care expenses are only $3,000 per month, the company will reimburse you the $3,000 difference. The $2,000 you didn’t use that month will remain in your account until the end of the benefit period. It can only be used for long-term care costs.

The Key to Preserving Your Assets

When it comes to long-term care, planning ahead is important, particularly if you plan to use Medicaid to cover assisted living and care costs. Before you may pay for Medicaid, you must draw away your savings for five years. Your policy would be denied if the valuation of your estate is too high if you apply later. Additionally, you could be subject to fines if you gift your money within the five-year look-back span. 

If you want a long-term care rider or a standalone long-term care package, speak to a financial advisor about a financial plan that protects your care while still protecting your descendants.

Who Should Consider a Hybrid Long-Term Care Policy? 

One of every two Americans over the age of 65 receives some form of assistance. The need for a hybrid long-term care program is more common when people grow older. However, there are occasions where someone who is young and in good health will be unexpectedly injured and require long-term medical assistance. 

If you are retired, a long-term care rider will help you set your heirs up for financial success while still guaranteeing you can afford it. A short-term or long-term disability insurance policy can cover loss of income for someone who becomes disabled. For those who are still employed, this policy may be more important than a long-term care rider while you’re still working.

Even if you’re not disabled, you can maintain a separate disability insurance policy. By adding a disability insurance rider to your life insurance policy while keeping a separate disability policy is the perfect way to plan for the future. 

A hybrid long-term care policy is easier to get it while you are younger. Just like normal life insurance, the risk of needing a long-term care grows with age. Regardless of cost, adding a long-term care rider to your life insurance policy could prove advantageous as you reach retirement. Also, even if you don’t use it for 30 to 40 years, buying a policy early will mean you get a good deal and don’t jeopardize your or your family’s financial security.

Since the costs of assisted living and health care are so huge, it’s important to have a budgetary plan in place even before you need to pay for care. A hybrid long-term care insurance policy will provide coverage if and when you need it.

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