Americans approaching the age of retirement have increased options for long term care health coverage. As traditional LTC insurance becomes more costly and underwriting gets more arduous, Hybrid LTC products are turning out to be a favorite option for most people. These policies work by bundling together a life insurance policy or annuity coverage with LTC coverage.
The primary appeal of this approach is that it eliminates the use-it-or-lose it approach typical in traditional long term care products. Even better, hybrid policies have fixed premiums that are guaranteed and cannot be increased in the future.
How does it work?
The concept behind hybrid long term care plans is fairly simple. Most of these products combine life insurance with long term care insurance into a single hybrid policy. Others will pair an annuity with long term care insurance to make a single policy long term care annuity. Hybrid long term care insurance policies typically require a single upfront premium and offer the benefits associated with the life/annuity policy base, together with additional benefits of long term care coverage. Just like traditional LTC insurance, a life insurance + LTC policy offers leveraged payouts to fund long term care expenses. This policy basically creates a pool of money that can be used to pay for long term care either for a specified minimum period of time, or for a lifetime.
Some policies have an Accelerated Death Benefit Rider for qualified long term care needs. This simply means that should you need long term care services, the amounts will be deducted from the death benefit value. The Accelerated Death Benefit is usually a free rider. Not all companies offer this option.
Other hybrid life insurance policies offer a standalone LTC rider that can be purchased at an additional cost. LTC riders are not typically only available with permanent life insurance policies such as Universal Life, Whole Life, and Indexed Universal Life policies (not term life policies).
The Annuity + LTC hybrid starts as a deferred annuity. It may entail a single lump sum premium or structured deposits made over time. If the annuity owner does not need any long term care, then the annuity gains interest and functions like any other fixed annuity. However, if the annuity holder needs care, a formula will be used to establish the amount of benefits available to them every month. We pivot to these policies when the client has real health issues and cannot medically qualify for a traditional hybrid long term care insurance policies.
Pros and Cons of Hybrid LTC
What are the advantages of LTC life insurance hybrid?
- LTC hybrid products guarantee return of premium either in the form of long term care benefits or a death benefit
- Medical underwriting is usually less stringent with hybrid long term care insurance
- Premium rates are fixed (you don’t have to worry about future premium increases)
- Preferential tax treatment for repurposing an existing life insurance and annuity policy via 1035 exchanges. The 1035 exchange must be from one “like” product to the same “like” product. Life Insurance to Life Insurance or Annuity to Annuity.
What are the disadvantages of LTC hybrid products?
- Hybrid policies usually require a single lump sum premium payment or structured annual payments. This might be expensive for some people. However, newer products are emerging that offer flexible payment options.
- LTC payouts will reduce your policy’s cash value or death benefit. This might mean leaving little or no death benefit to your heirs.
Best Hybrid LTC Policies 2020
How to find the best Hybrid LTC products for you?
Use a company such as LTC Tree who specializes in helping people nearing retirement age find the perfect long term care insurance plan. The company was established in 1995 and has grown to be one of the leading ‘virtual’ long term care insurance brokerage connections in the country. Every year, LTC Tree focuses on helping thousands of consumers find the right long term care insurance for their needs, including hybrid plans, and LTC annuities.
The company is based in Atlanta, Georgia with offices across the country and sells to consumers in all 50 states. They connect people with individualized long term care insurance plans from all the top hybrid long term care insurance companies. In addition to being established as one of the leading nationwide brokerages for LTC insurance, LTC Tree makes the process of shopping for a policy super easy. What makes this firm unique is the sheer number of long term care options that they present to customers. They work for you the client, not one particular insurance company.
Once you express interest in LTC coverage and fill a quick form on their website, LTC Tree gets you quotes from multiple long term care insurance firms while making affordability and your requirements a priority. By bringing the competition to you, they essentially change the game and give you the power to choose a custom hybrid LTC plan that’s best suited to meet your needs.
We included LTC Tree amongst our best hybrid life insurance LTC policy brokers in 2020 because they offer such a diverse portfolio of LTC plans and related products. You can easily use their service to compare long term insurance companies and long term care policies right from the comfort of your home.
1. Nationwide CareMatters II (Love The Cash Benefits)
The Nationwide Care Maters II plan was launched in Fall of 2019 and updated the product again on April 11, 2020. The product is unique in that it will pay your benefits in CASH so you can spend the money however you see fit, This removes the hassle of having to submit a claims form and receipts and wait for insurance company approval – a process potentially fraught with red tape.
Securian’s plan also has cash “indemnity” benefits so be sure to compare both plans side-by-side at no cost with the LTC Tree service.
Another advantage of Nationwide’s CareMatters II plan is that while it does have a 90-day waiting period, after that has been met you’ll receive a back-payment check to day one. That means on many plan designs you’ll receive over $40,000 by average claim age in your first benefit payment should you need Long Term Care benefits and make it to the 91st day of your “elimination period.”
2. Lincoln Moneyguard III (Great Policy for Younger Applicants)
This is one of the earliest hybrid LTC policies that triggered the life/LTC combo market.
Lincoln Moneyguard III is the late-2019 updated version of the family and is known for having no waiting period for LTC benefits. They as well updated their product on April 1, 2020. The policy is easy to apply for and get approved with. It entails a single upfront premium, long term care benefits (if need be) or life insurance (if you don’t need LTC). Many customers like this LTC life insurance hybrid because it allows you to flexibly pay your premiums over a period of 3-10 years.
Although not as attractively priced as it used to be in prior years, this policy makes a decent hybrid option for single applicants, particularly younger applicants.
3. OneAmerica’s State Life Asset Care (Unlimited Benefits for Married Applicants)
If you want Unlimited Lifetime benefits, The State Life Asset care may be the ticket for you. It offers the possibility of unlimited benefits, and it is the only life insurance long term care hybrid to offer joint coverage for married applicants. Many policyholders love the fact that this product provides the maximum LTC benefits for married couples. Some plan designs also accept IRA money for funding.
State Life Asset Care easily qualifies as the top hybrid life insurance with long term care in the market right now.
4. Minnesota Life SecureCare (Pays Out Cash Indemnity Benefits)
This is a combination life and long term care policy that pays out 100% cash indemnity benefits. This is unlike many other LTC hybrid products that use the reimbursement model (where you have to submit your receipts as evidence before benefits are paid out). If you need long term care, you receive tax-free LTC benefits. In the case you do not need long term care, your heirs receive tax-free death benefits upon your demise. In the case you change your mind and want to quit the policy, you receive a cash surrender value.
To purchase to this policy, you select an initial long term care benefit amount, a benefit period (2-7 years), an acceleration of LTC Agreement (2-3 years), an extension of LTC Benefits Agreement (2-4 years) and inflation protection options.
5. New York Life Asset Flex (Residual Death Benefit)
The Asset Flex is New York Life’s equivalent of the Lincoln Moneyguard II and OneAmerica’s Asset Care. Launched in 2017, this single premium universal life insurance policy allows the insured to accelerate some of their life insurance benefit for long term care needs over a period between 24 – 36 months. Should the policy owner exhaust their life insurance benefit, Asset Flex provides an Extension of Benefits for long term care rider so you receive benefits for up to 48 months.
Asset Flex premiums are paid in lump sum or in annual installments over a period of 5 to 10 years. This is a reimbursement type hybrid policy, which means you’ll need to provide receipts for qualified care services in order for benefits to be paid out. The policy has a 90 day waiting period, and there’s a residual death benefit that’s equivalent to 10% of the life insurance face amount.
6. State Life Annuity Care II Series (Excellent Annuity/LTC Product)
The State Life Annuity Care II is a single-premium deferred annuity that comes with LTC benefits. It is one of the best LTC hybrid annuities available that also provides a 5% compound inflation protection at a highly affordable price point. Your single premium grows as the AV (Accumulated Value) with a guaranteed minimum interest rate. This is the value that is passed on to your beneficiaries at death (if not needed for end of life care). Your premium also grows at a secondary, enhanced interest rate for the LTC Accumulated Value (LTCAV). This is the amount that your receive for qualified LTC expenses.
Annuity Care II is medically underwritten, which means you should be in reasonably good health to be able to apply. The policy is available for individuals within the 40-80 age bracket, and can be purchased by a single person or spouses. The minimum accepted single premium is $10,000. Make sure you select a premium amount that will be enough to cater for your needs.
Important features to consider
More Americans in their 50s and 60s are starting to consider hybrid life insurance with long term care products. Statistics show that there were over 260,000 such policies sold in 2018. That was over 66,000 more than the number of hybrids sold in 2018. But as you go shopping for a hybrid life insurance and long term care insurance combo, it’s important to keep in mind that not every hybrid is equal. Products vary greatly on price points, features, flexibility, and benefits options. Below are some of the key factors that you should put into consideration when shopping around for the best hybrid long term care policies.
- Eligibility requirements – it’s important to study a policy’s eligibility requirements for benefits to be granted. Usually, a licensed health care practitioner must certify that the insured person has a severe cognitive impairment or cannot perform at least 2 of 6 Activities of Daily Living (ADLs) for at least 90 days or more. Keep in mind that you’ll need to complete the elimination period before benefits start rolling out. These eligibility requirements also apply to traditional LTC insurance policies.
- Monthly benefit amount – at the time of application, a hybrid policy owner can choose between a fixed monthly benefit amount, or an acceleration percentage (of the life insurance policy’s face value). The duration of benefits payout depends on the payout option selected at the time of buying the policy. You may choose to receive the maximum payable monthly benefit for as long as your LTC eligibility continues. You may also elect to take less than the full monthly benefit in order to receive payouts for a longer duration, or preserve the death benefit amount.
- Reimbursement vs cash indemnity benefit – policies may offer either a reimbursement or a cash indemnity benefit. With a reimbursement benefit, the policyholder will need evidence and approval of actual expenses before the monthly benefit payment can be granted. On the other hand, a cash indemnity benefit pays out the full monthly LTC benefit without asking the policyholder to submit receipts or other evidence of expenditure.
Cash indemnity hybrid long term care plans tend to offer more flexibility because you can use your benefits to pay informal caregivers, family caregivers, or take care of other expenses that may not be admissible under a reimbursement benefit arrangement.
- Taxation of benefits – benefits that are received are usually tax-free up to a certain level. The HIPAA (Health Insurance Portability and Accountability Act) set this level at $360 per day or $131,400 annually (as of 2018).
- Return of premium – many hybrid policy LTC riders do offer a 80-100% return of premiums paid (subject to a specified vesting schedule). This means if the policy owner intends to surrender the policy after premiums have been paid, they can secure most (if not all) of their money back.
- Inflation protection – some policies offer provisions for protecting the benefit payouts from inflation. These annual inflation riders may be simple or compound, and are available at 3 percent or 5 percent.
- Residual death benefit – some policies do pay a nominal death benefit (guaranteed minimum death benefit) even if the entire death benefit amount was used up paying for the policy owner’s long term care expenses. These options vary greatly from one policy to another and it’s important to pay close attention.
Hybrid LTC FAQs
What is a hybrid long term care insurance policy?
A hybrid policy is simply a combination of a traditional permanent life insurance policy with a long term care rider. Hybrid policies are more appealing to customers because they either cover long term care expenses (if need be) or payout a death benefit. This overcomes the ‘use it or lose it’ approach that makes most traditional LTC policies unfavorable.
What are the benefits of hybrid long term care insurance?
- Premiums are guaranteed and cannot be raised in the future
- A death benefit is paid out to the policyholder’s heirs, whether or not they end up needing LTC coverage
- Underwriting requirements are less stringent compared to traditional LTC policies
What is the best hybrid long term care insurance policy?
The best hybrid policy is the one that adequately addresses your needs and morphs into your future planning. Some of the very best hybrid policies we have seen include OneAmerica’s State Life Asset Care, and the State Life Annuity Care II Series, among others. Most people find that they are happier receiving multiple custom quotes from different insurers and then choosing the one that best addresses their requirements.
How much does long term care insurance cost?
Contrary to conventional LTC insurance policies that require small premiums paid over a number of years, most hybrid LTC products are funded with a single lump sum upfront payment – usually to the tune of $50,000 or $100,000. It’s worth noting that some LTC hybrid plans allow flexible premium payments.
How does hybrid LTC tax deduction work?
Benefits received from hybrid long term care are typically tax-free up to the greater of actual LTC expenses or the per diem rate established by Health Insurance Portability and Accountability Act. As of 2019, that amount was set at $360 per day.