Hybrid products have been created to develop your premiums into long term care payouts, and still, offer the chance to get your cash back in the case you decide to call the deal off.
Currently, there are tons of hybrid LTC insurance policies available from different companies. In practice, insurers have taken the usual traditional LTC benefits and structured them into life and annuity insurance contracts. This is done by reducing the benefits of life insurance and annuities to bare-bone minimums and additionally allowing policyholders to receive the contract’s value to pay for long term care if the need arises. Keep in mind though that no 2 policies are exactly the same. Insurance firms are always tweaking their products so they can stand out from the competition.
Below are the pros and cons of hybrid long term care insurance.
The Pros of Hybrid LTCi
There are more hybrid LTC benefits than we might want to dwell on. Here are the main ones.
- Premiums are returned – with hybrid policies, your premiums are not lost in the case you do not use your coverage. Annuity-based hybrid LTC plans allow you to access a guaranteed minimum of your account (usually the sum total of your premiums). And in the event you pass away – God forbid – the account value is given to your beneficiaries. In hybrid life/LTC policies allow the return of premium benefits. If the policyholder passes away without using policy benefits, his or her beneficiaries receive a life-insurance payment.
- Fixed premiums – with hybrid LTC policies, you never have to worry about your insurance services provider hiking premiums. Typically, you’re required to pay a one-off premium, or at least stretch payments through a number of years (up to 10 in most cases).
- Leverage – hybrid plans build your premiums into significantly higher benefits for long term care. Otherwise, folks would invest the money and ‘self-insure’. Although it depends on the particular policy that you’ve subscribed to, we’ve noted that hybrid plans can leverage your premiums by up to 4 times (or more).
- Tax benefits – insurance payouts (benefits) for LTC are tax-free provided they don’t exceed certain maximums under the HIPPA guidelines.
The Cons of Hybrid LTCi
Just like there are pros to hybrid long term care, there are also significant downsides
- Meager returns – most certainly, returns from your premiums will be meager if anything at all. With annuity hybrids, you get a guaranteed returns rate. But whatever gains you make are eaten away by LTC rider fees. Life hybrids, on the other hand, won’t buy you that much of a life insurance. Premiums that you pay in lose the opportunity of being invested elsewhere to return significant gains. It’s called opportunity cost. By contributing premiums to a hybrid LTC plan, you trade the opportunity to invest the same amount in a much more productive investment.
- High premiums – many hybrid policies requires that you pay your entire premiums upfront in the form of a lump sum deposit. This means that you’ll have to finance the large premiums from assets, rather than contribute small payments from your income.
- Not IRA friendly – if you want to finance your hybrid policy from an IRA, you’ll get slapped with usual income taxes. If you are less than 591/2 years, you’re penalized for any IRA withdrawals that you make. Although there are some annuity hybrids that rely on IRA funds as premiums, they tend to be very complicated and less attractive.
- Potential penalties – some hybrids won’t allow you to get the full return of your premiums till the contract is active for a pre-defined time period. It’s important to study your policy to learn whether it’s subject to penalties like these.
- Underwriting required – hybrid LTC plans tend to have accelerated underwriting. Nonetheless, you still need to undergo medical underwriting. This usually entails a phone interview where the insurer collects information related to your health history. A cognitive test might also be needed.
Since policies are different, each hybrid long term care should be judged based on its own merit. It’s advisable to seek professional help from a skilled long term care expert when evaluating hybrid policies from various providers. To get custom quotes from the leading providers in the market right from the comfort of your home, get in touch!