Why Hybrid Long-Term Care Insurance is Best for You

Last updated on December 8th, 2020 at 10:28 am

The cost of long-term care is very substantial and are projected to increase, and you’re more than likely going to need it as well as help paying for it. In order to know if hybrid long-term care insurance is the best option for you, you need to understand the differences between traditional policies and hybrid linked benefit policies.

Will you need Long-Term Care?

Many people believe they will never use long-term care, but end up needing it in the long run. What happens if you suddenly need help after a major illness or injury, such as a stroke, heart attack, or broken hip and you don’t have LTC insurance? Your family may not be able to afford to pay for all of the help you need. No one plans on getting sick or injured, but the best thing to do is to plan ahead in case that does happen. Some illnesses can be spotted ahead of time, but some appear out of nowhere.

If you do end up needing help due to one of those reasons, you may need nursing home or home health care for only a short amount of time. Or, you may need help for many months, years, or the rest of your life. It’s hard to believe that you may end up like that, but here are some stats from A Shopper’s Guide to Long-Term Care Insurance to help convince you:

  • Life expectancy after age 64 is now 18.6 years. In 1940, it was only 13 extra years after the age of 65. The longer people are living, the higher the chance of needing help due to chronic conditions.
  • About 70% of people who reach the age of 65 are expected to need some form of long-term care at least once in their life.
  • About 11 million Americans of all ages require long-term care, but only 1.4 million live in nursing homes.
  • About 35% of people who reach age 65 are expected to enter a nursing home at least once in their lifetime. Out of the people who are in the nursing home, the average stay is one year.
  • From 2015 to 2055, the number of people aged 85 and older will triple from over 6 million to over 18 million. This growth is definitely going to lead to a rise in the number of people who will need long-term care.

Dementia and Alzheimer’s Disease

Alzheimer’s disease is a progressive brain disorder that damages and eventually destroys brain cells, leading to memory loss and changes in thinking and other brain functions. This disease usually develops slowly and gradually worsens as brain function declines and brain cells eventually wither and die. There is no known cure to either of these fatal diseases at the time.

Dementia is not a specific disease. It’s an overall term that describes a wide range of symptoms associated with a decline in memory or other thinking skills severe enough to reduce a person’s ability to perform everyday activities. Alzheimer’s disease accounts for 60%-80% of the known cases. The second most common type of dementia is Vascular Dementia, which happens after a sever stroke. There’re are many different conditions that can cause a person to show the symptoms for dementia, including some that are reversible. These include, thyroid problems and vitamin deficiencies.

Many people believe Alzheimer’s disease is a normal part of getting older, which it is not. The older you are the more risk you have to getting it, which is why people think that. Alzheimer’s is not just a disease of old age. According to the Alzheimer’s Association, there are approximately 200,000 Americans under the age of 65 that have early-onset Alzheimer’s disease.

Alzheimer’s disease is most common form of Dementia and the leading cause of disability and poor health, as well as one of the costliest of chronic diseases. According to the Alzheimer’s Association:

  • Nearly half of those paying for a friend or family member with dementia reported they had to cut back on spending for their own personal needs in order to support them.
  • 28% reported spending money from their own retirement savings to pay for the person with dementia.
  • 1 out of every 9 people 65 and older has Alzheimer’s disease.

Symptoms of Alzheimer’s

  • Memory loss that disrupts daily life
  • Challenges in planning or solving problems
  • Difficulty completing familiar tasks at home, at work, or at leisure
  • Confusion with time or place
  • Trouble understanding visual images and spatial relationships
  • New problems with words in speaking or writing
  • Misplacing things and losing the ability to retrace steps
  • Decreased or poor judgement
  • Withdrawal from work or social activities
  • Changes in mood and personality

If you see any of these symptoms in yourself or a loved one, pick up the phone and schedule an appointment with your doctor. The best thing to do is spot it early and begin treatment. Do not ignore it if you see any of those symptoms.

Long-Term Care Cost Without Insurance

The reason people buy LTC insurance is because the cost is very expensive. The cost is different for everyone depending on which care you need, where you get it from, and the amount of time you need the care for. Long-term care is also more expensive in some states than others. Here are a few examples of average annual costs for care:

Nursing Home Costs

The national average, in 2010, for nursing home care was $78,000 a year for a semi-private room. That price doesn’t even include things you may need such as therapy, medication, etc. which will make the price go up even more.

Assisted Living Facility Costs

Assisted living facilities reported charging on average $3,293 a month for one bedroom unit in 2010, which is $39,516 a year. This cost includes rent and most other fees, but residents will have to pay more if they need more care than the average person.

Home Health Care Costs

The cost of basic home healthcare, in 2010, averaged $21 an hour for a home health aid in the US. You can get unprofessional help in your home for cheaper, but most people usually want licensed nurses to help them, which is more expensive. The costs for home health care depends on the number of days a week the caregiver visits, the type of care needed, and the length of each visit. Home healthcare can be pretty expensive if help is needed 24/7. The costs also differ based on which state you live in.

As you can see long-term health care can be pretty costly, so why not take the extra step and invest in LTC insurance? It will save thousands for yourself as well as your family. It will also save your family from constantly worrying because they know you’ll be in good hands. Take a look at the different types of insurance you can invest:

Traditional Long-Term Care Insurance

Long-term care insurance is known to come with one stand-alone policy, which you choose the benefits at the beginning. The policy you choose can be custom-tailored to suit your needs. The premium that you choose is guaranteed renewable. Premiums can be paid on a monthly, quarterly, semi-annually, or annual basis. As long as you keep up with your payments, you’ll be covered.

As far as insurance goes, LTC is very similar to the other types of insurance you have (auto, homeowners, and health) because there is no cash value. Health and LTC insurance are also similar in the way that if you do not make a claim on your policy, you will not receive any benefits.

The premium for your LTC insurance is usually affordable because they are paid on a “pay-as-you-go” approach, but they are not always set at a fixed price, which means they may be subject to a rate increase. Very few highly rated companies have never requested a rate increase on any active policy holder.

It is very important you understand the maximum period of coverage and the maximum benefit pool. For example, if the maximum period of coverage is 4 years and the maximum benefit pool is $219,000. Let’s say your 4 years ran up and you need more coverage, even if you have not hit the maximum benefit pool amount, you can not get it. The same goes for the maximum benefit pool amount. If you hit that amount and you still have 3 years left, you will not receive anymore coverage.

One downside of traditional LTC insurance is there are no death benefits.

Some clients can’t get over the “use it or lose it” concept of long-term care insurance. It is very difficult to convince yourself to buy a policy that costs several thousands of dollars and risk not getting anything out of it if you die in your sleep. According to NerdWallet, “I had a client pass away last year in his mid-80s. He paid about $3,250 per year in premiums for 19 years.” That means that he paid over $60,000 that he or his family couldn’t use a cent of.

This is how most types of insurances are unfortunately. You pay for a long time and then get nothing out of it, which can be good and bad. It’s good because it means that you’re still living, or you didn’t get in a car accident. It can be bad because some people think that money went to waste.

Think about it, if you pay for a term life insurance policy, at the end of the term, you never wish you had died during that time period so you wouldn’t have wasted the money. Same goes for car insurance, you pay it every year and you never wish that you would have gotten in an accident to avoid wasting the money. Some people tend to think this way when it comes to LTC insurance.

A great solution for this fear of wasting money is hybrid long-term care insurance.

Hybrid Long-Term Care/Life Insurance

How does it work?

Hybrid insurance is an asset-based approach to fund long-term care. These products add a long-term care “rider” to a permanent life insurance policy (whole life or universal life products, not term life). The policy holder usually pays a large amount up front or a guaranteed set of premiums for a set time period. The long-term care feature allows you to receive a tax-free advance on your life insurance death benefit to pay for long-term care while you’re still alive.

Hybrid insurance joins long-term care insurance with a universal life insurance or a fixed annuity. This form of insurance comes with many benefits that traditional long-term care insurance does not normally have. Policies with universal life insurance or a fixed annuity can be tapped into for other reasons besides long-term care and can even be passed on to heirs.

With hybrid insurance, you can pay a single upfront premium, a set of premiums for a fixed term, or ongoing premiums. The reason this type of insurance is so attractive to people is because by paying one single premium or a set of premiums you avoid the risk of future premium increases.

Some policies come with a “surrender period,” which means that you can not tap into that money until that period is up without paying a penalty. While the money is being held by the company, it will grow with interest and be invested. Each policy usually provides a fixed interest rate for cash value growth.

This type of long-term care insurance is incredible because it could be looked at as a fixed-income investment, cover long-term care, and provide a life insurance benefit.

If you change your mind a couple of years into the policy, you can most of your premiums back. There is also a death benefit that will be paid to your heirs when you pass. Leaving an inheritance is extremely important to a lot of people when it comes to choosing their policy. People really like knowing that the money they paid in their premiums will someday be passed down to their kids.

Traditional long-term care insurance policies do not have these guarantees. Insurers can petition the state departments of insurance to raise your premiums as much as 50% per year. People with limited assets can not afford the raise in prices.

Hybrid insurance policies are guaranteed to receive your premium back if you never end up needing long-term care. Hybrid insurance policies are fixed and the premium is guaranteed to never increase.

Would a Hybrid LTC policy be a good fit for you?

Hybrid policies usually have the most attraction to people in their late 40s to early 70s, who are concerned about their long-term care costs. The last thing you want to do is depend on your family to take care of you, but you would still like to leave them an inheritance when you die. According to Securian, 6.3 million people over the age of 65 are chronically ill, which will grow to over 15 million within the next 33 years.

Traditional Long-term care insurance is going out of style due to the increase in prices and is now being replaced with hybrid policies. In 2000, Americans purchased 750,000 new stand-alone LTC policies compared to the 105,000 in 2015. On the other hand, in 2007, there were 15,000 new hybrid policies sold, compared to the 220,000 in 2015.

How much can you save on insurance?

A hybrid policy usually costs around 5%-15% more than a stand-alone life insurance policy, depending on which company you choose. Comparing that to a standard long-term care policy, which can cost anywhere from $2,500 to $3,500 (or more) per year.

You need to take into account that the cost in life insurance varies from person to person, and the price you pay when you are young and healthy is much lower than when you’re older and more prone to bad health.

How to qualify for Hybrid LTC Policy

Just like you would with any standalone insurance policy or long-term care policy, you will usually need to go through a medical exam to be sure you qualify for a hybrid policy. Your insurer may ask for copies of your medical records, a statement from your physician, as well as for you to fill out a health survey.

If you do qualify for a hybrid policy, the long-term care provision provides assistance if you suffer from any illness or injury and need help completing tasks you would normally be able to do on your own, such as bathing or feeding yourself.  If you do have long-term care coverage, it will help improve the quality of your life.

The insurance benefit comes into effect when you can’t perform two of the six “activities of daily life,” which include:

  1. Bathing yourself
  2. Dressing yourself
  3. Going to the bathroom on your own
  4. Feeding yourself
  5. Moving from a chair or bed without assistance
  6. Continence

What you get with Hybrid LTC

The policies will:

  • Pay for your costs should you ever need care
  • Provide your estate a tax-free life insurance benefit should you not ever receive care
  • Offer you a 100% money-back guarantee if you change your mind

Some policies will package life insurance with “chronic illness acceleration riders,” which allows you to access your death benefit early if you have an illness that’s likely to last the rest of your life.

Disadvantages of Hybrid LTC

There may not be many disadvantages that come with hybrid LTC, but there are some. Hybrid policies are good at many different things, but they are not better at one thing than another. Sometimes you will pay more for the premium than you will walk away with, but the fact that you’re walking away with money at all is better than traditional long-term care insurance. Sometimes when the insurance is offering too much long-term care insurance, they can’t offer great growth on the cash value or a great death benefit.

Another disadvantage of hybrid policies is that the premiums are paid over shorter period of time which can make them unaffordable for some clients.

The last disadvantage of the premiums you pay for hybrid policies may not be tax deductible because hybrid policies are not considered tax-qualified policies.

How to choose which company is best for you

The best way to choose which company will benefit you the most is by speaking with an insurance professional. Make sure to speak to someone who represents multiple companies. The reason to do this is so they are knowledgeable of all insurances and not biased towards the one they work for.

You also need to make sure they’re not going to making a large commission based on which company you choose. This is because they could try to convince you to pick the company they will make the largest commission from. If you speak to a professional about this, they will assess your health and your assets and tell you which would be best for you. They can also help you figure out which company offers discounts and deals to help save you money.

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