Getting life insurance is a great way to make sure your loved ones stay financially secure after you pass away. They can use proceeds from the policy to cover their daily living expenses, fund their education, and pay off debts, among many other things.
But there are ways that a life policy can provide you with financial protection while you're still alive. One option you can consider is getting a hybrid long-term care policy.
Hybrid long-term-care insurance allows you to pay for nursing home care or an assisted living facility, in case you get disabled and are unable to live independently. That way, you don't have to pay out-of-pocket and drain your savings.
In this guide, we'll talk about hybrid policies. We'll compare them with a standalone long-term care policy to help you decide which one is best for you.
Defining Hybrid Long-Term Care Insurance
A hybrid policy is a combination of a life insurance plan and a long-term care (LTC) plan. It's more expensive than a basic life insurance plan, but it comes with more benefits.
The key advantage of hybrid life insurance is that it helps you preserve your assets while you’re alive – you don't have to dip into your savings in case you need LTC in the future. Additionally, you'll be able to leave your loved ones with a sizable death benefit.
Hybrid Policy vs Standalone Long-Term Care Insurance
When shopping for hybrid life insurance, you might be offered a standalone long-term care insurance policy. This is meant to help you pay for care services, but it does not come with a life insurance death benefit.
If you can pay premiums for both a traditional life insurance policy plus a standalone long-term care policy, this is a good option. Having both will enable you to pay for long-term care while also allowing you to leave your loved ones with a death benefit after you pass away.
Keep in mind that if you never use the care benefit from a standalone LTC policy, you might not be able to get your premiums back. Make sure to discuss with your agent before purchasing a standalone policy, so that you’re never blindsided by its terms and conditions.
Hybrid Policies vs Health Insurance
Long-term care insurance policies are meant to cover your assisted living costs. They will not pay for services that are covered by health insurance, such as medical treatments and prescriptions.
How Does A Hybrid Policy Work?
If you have a hybrid life insurance policy, you can take funds from the policy's face value to pay for an assisted living facility or an in-home health care provider.
LTC services refer to assistance for people with chronic illness or disability. They're meant to help people with activities of daily living (ADL), such as:
Transferring (walking from one place to another)
In order to get long-term care assistance from your life insurance policy, you must fall under your insurer's definition of disability. Typically, an insurance company will require an attending physician's statement showing that you can't perform at least two activities of daily living (ADL).
Aside from hybrid or standalone LTC policies, you can also add an LTC rider to your existing insurance policy. The caveat is that the care benefit only lasts for five years with a rider. After this period, you'll need to take money from your assets or rely on Medicaid to cover care expenses.
Who Needs Long-Term Care?
Even if you don't need long-term care now, there's a good chance you might need it later in life. The US Department of Health and Human Services estimates that a 65-year-old has almost a 70% chance of needing some type of long-term care for the rest of their life. On top of that, 20% may need it for longer than five years.
Even though you might have to wait 30 or 40 years before you can take advantage of LTC benefits, it's best to purchase a hybrid policy while you're young. The cost of this type of policy increases with age and may become too expensive by the time you reach retirement.
Semi-private room in a nursing home: $225 per day or $6,844 per month
Private room in a nursing home: $253 a day or $7,698 per month
Assisted living facility: $119 a day or $3,628 per month
Health aide: $20.50 per hour
Homemaker services: $20 an hour
Adult day healthcare center: $68 per day
Keep in mind that these rates will rise with inflation. If you're in your 50s now, you might end up spending $100,000 to $200,000 a year for care services in 20 years.
Will Medicaid Provide Long-Term Care Benefits?
Not everyone can qualify for LTC services under Medicaid. First, you'll need to have income and assets below certain levels. Income requirements vary per state, but assets (excluding your home and one car) typically can't exceed $2,000 as an individual or $3,000 as a married couple.
To apply for Medicaid, you'll have to provide financial documents and submit them to the Department of Social Services. They'll evaluate any assets you own as well as assets you've transferred out of your name in the past five years. If your assets exceed the maximum eligibility, you'll need to spend down your assets, which involves giving away assets to family members or paying off outstanding debts.
Additionally, people who want to fund from Medicaid should require a level of care equivalent to what you'll receive from a nursing facility.
Other Benefits Of Hybrid Long-Term Care Insurance
Hybrid life insurance with long-term care coverage comes with several benefits. Here are some of the reasons you should consider this type of policy:
No Life Insurance Premium Hikes
Premium payments for hybrid life insurance products don't increase over time. By comparison, traditional long-term care policies generally become more costly after several years.
Flexible Payment Options
Hybrid life insurance gives you the ability to choose how you pay for your policy. Most insurance companies let you pay a lump-sum premium or monthly/annual premiums, depending on your preferences. Traditional long-term care policies don't normally give you the option to make a lump-sum payment.
Less Stringent Underwriting
A hybrid policy may also require less rigorous medical underwriting compared to traditional long-term care insurance policies. Instead of taking a medical exam, you may just have to answer a few health questions.
Pay For A Family Caregiver
Depending on the type of hybrid policy you buy, you may be able to pay a family member to assist you with the activities of daily living. This is especially true for hybrid policies that pay in cash rather than via reimbursement.
Accumulate Cash Value
Just like other permanent life insurance policies, hybrid policies have a cash-value component. You can take money out of the cash value account to pay for LTC services.
Special Considerations For Hybrid Long-Term Care Insurance
Hybrid life insurance with long-term care coverage has its own set of drawbacks. Here are some special factors to consider if you're thinking of buying hybrid life insurance:
Fixed Waiting Period
People usually need to wait 90 days after getting disabled before they can use their insurance policy's care benefits. This waiting period, also called the elimination period, is usually fixed for hybrid policies.
By comparison, standalone plans have more flexible terms. You can have an elimination period that ranges from 30 days to two years. The longer the elimination period, the lower your premiums will be.
No Inflation Protection
Hybrid policies don't always include inflation protection. This means that the payout of the policy often won’t increase along with the rising costs of care.
Not Eligible For Medicaid Partnership Programs
Traditional policies are eligible for Medicaid partnership programs. This will allow you to qualify for Medicaid without having to spend down all your assets. However, hybrid policies typically won't let you participate in these programs.
More Expensive Than A Standalone Care Plan
Hybrid life insurance products are more expensive compared to standalone care plans. For example, a 55-year old individual would pay $5,532 annually for a hybrid policy with a $150,000 death benefit and a $330,000 LTC benefit. Meanwhile, they would pay only $4,000 annually for a standalone policy with the same LTC coverage.
Hybrid life insurance policies pay out a sum of money after the insured person's death while also providing long-term care benefits. Premiums are higher than what you'll pay for a typical term or permanent life plan, but they offer more robust financial protection for unexpected life events such as disability or illness.
If you want to learn more about hybrid life policies, get in touch with Wesley Insurance, LLC. We'll help you assess your needs and choose among the available coverage options.