Pros and cons of hybrid Long Term Care Insurance

On average, about 10,000 people celebrate their 65th birthday every day. This makes finding a way to finance long-term care (LTC) an important consideration. National Educational Services financial advisors can help you prepare for a successful retirement by discussing your LTC plans!


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Hybrid Long-Term care policies are often a good solution when thinking about paying for care in the future. Find out why hybrid long-term care policies could be a new way of paying for this often expensive issue.

What are hybrid Life and LTC policies?

Hybrid policies offer some flexibility in terms of coverage. With a hybrid policy, you are eligible for tax-free reimbursements for qualified long-term care expenses and tax-free death benefits to your family if those benefits are available. In addition, you could receive a possible return on your premium should you eventually change your mind about your long-term care coverage. 

Three common forms of hybrid policies are listed below. These each has accelerated death benefit riders. Remember, these riders need to be decided when purchasing your policy because they are factored into your premium costs. 

1. Life insurance with LTC death benefit acceleration rider

With this type of policy, the policy owners may take an advance from their death benefit while they’re still alive if the needs are qualified. However, the benefit received will reduce the death benefit dollar for dollar. If the policy owner should use all of the death benefits as an advance, the policy is terminated. If there are funds left in the account at the time of death, those funds will be paid out to the beneficiaries.

2. Life insurance with a chronic illness rider

Just like the previous policy, you can accelerate death benefit payments with this policy. However, typically the only qualifying conditions for this would be permanent chronic illnesses. This means conditions with no medical cure, like heart disease or some cancers. With this type of policy, some consumer protections may be unavailable as well. 

3. Linked benefit life insurance with extension-of-benefits (EOB) rider

This option provides two different benefit pools, each designed to last for a specific term. The first being an acceleration of the death benefit. This can be used as monthly long-term care benefits or as a death benefit. If this first benefit pool is empty, monthly payments will then come from the second benefit pool. The second benefit pool is available for monthly LTC benefits only. These accounts are made to carry beneficiaries through a specific term with a maximum amount of funds in each pool. Should the first pool have unused funds at the policyholder’s death, the unused death benefit will be paid to beneficiaries. 

Linked benefits can also be referred to as “asset-based” long-term care insurance. These plans are often created using retirement accounts, savings, and 1035 exchanges from life insurance or annuities. For instance, should you link your long-term care insurance to your life insurance with an EOB rider, and you never need the long-term care benefits, you are guaranteed a death benefit that is higher than your premium. If you decide to cancel your plan, you usually will receive your deposit back.  

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Each person has a unique reason for wanting to acquire Long Term Care coverage. In order to find the policy that best fits your needs, first, determine why you would like a policy to begin with. Some people would like the peace of mind that the maximum amount of Long Term Care coverage provides, while others are looking for coverage that won’t require too high of a budget. In either case, age, income, asset base, and tolerance for financial risk will need to be considered in order to determine what will work best for you. Our highly knowledgeable Long Term Care professionals will be able to provide technical advice and recommendations based on your needs.

Absolutely. If you’re looking to expand your coverage, you will need to be approved again which will require another process of medical underwriting. Once this is completed, your new information will be used to determine your updated premium. If you choose to reduce your benefits, you will not need to undergo medical underwriting again.

When calculating a premium many factors are considered. These include your age and health at the time of application, and your benefit choices. Benefit choices include how much your benefit amount is, your benefit period, and your elimination period. Medical underwriting is the process in which your application is examined, then your premium is determined.

Yes! Any policies that are tax-qualified do have some tax advantages. If you itemize and your total expenses are over 7.5% of your adjusted gross income. In addition, benefit payments are insusceptible to federal taxation and even state taxation in some states. Finally, if your employer provides contributions for LTC premiums they may be 100% tax deductible.

Financial planning has been crucial for you to achieve this goal. Since Long Term Care can be extremely expensive (between $60,000 and $100,000 every year) using some of the interests acquired from your assets for Long Term Care coverage could be a great way to continue planning for your future! The price of Long Term Care continues to rise but National Educational Services is here to help you find the policy that fits your needs.

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Since 1982, National Educational Services has been servicing the financial needs of educational employees.