The Benefits of a Hybrid Long-term Care Insurance
Approximately 25 percent of the United States population is the baby boomers who were born between 1946 and 1964. They are between the ages of 53 to 72, have been retiring steadily since 2008 causing a shift in market volatility.
This generation of people will be needing some sort of long-term care alternatives.
To expect Medicaid to pay for long-term care one will have to spend down the assets and estate to pay first. The cost of health care depending on services needed ranges from $3,200 per month to about $6,200 per month or higher.
That is a sticker price on the average of $4,700 per month with a yearly cost of at least $56,400 but will probably be closer to $70,000 per year conservatively. This will only increase as inflation increases.
This will quickly spend down the hard-earned estate of most Americans. As a result, the need for quality health care that can be pre-bought and paid for by long-term care (LTC) insurance came into being. It normally covers the following:
- Home Care
- Assisted Living
- Adult Daycare
- Respite Care
- Hospice Care
- Nursing Home
- Alzheimers Facilities
These benefits do not come with a cheap premium price tag, and this premium cost increases with age.
This is one complaint. The other is if the policy owner simply dies without using any or much of the long-term care insurance, the benefits of paying the premium were lost.
One could argue it is the same as paying for house fire insurance. If you never have a fire, you never get the benefit. But it is too late to buy it once the fire starts.
This is the same as with long-term care insurance. You need to buy it before you need it. So therein lies the quandary.
So what is the solution?
There are three reasons to purchase long-term care through what is known as a hybrid policy.
A hybrid long-term care insurance policy is a combination policy with a permanent death benefit along with a guaranteed return of premium.
Let’s take a look at each long-term care policies separately.
1. Guaranteed Return of Premium
Under this policy, the premiums are guaranteed to be returned to you if you decide later to cancel.
Typically, it is a vesting schedule based on the premium payment schedule that is 100% return of premium after 5 years.
A policyholder could change their mind and not need long-term care insurance due to inheritance, lottery winnings or any other financial windfall that means that the long-term care need is covered elsewhere.
2. Guaranteed Death Benefit
The premiums for this policy funds a death benefit that is paid to beneficiaries upon the death of the policyholder.
It is typically a permanent universal life policy that can create a cash value. It is this death benefit that is used to fund the long-term care benefit first. Meaning that the heirs will get less benefit the longer the policyholder is using the long-term care benefit of this policy.
Even if the death benefit is used up, this type of policy still pays out about 10% to the beneficiaries.
This part takes care of the objection “if I do not use it, I lose it” argument. If the policyholder dies before any or very little long-term care benefit is used, the policyholder benefits his family with income tax-free death benefit. This is an act of love.
3. Residual Long-Term Care Benefit
This is the cool part because this type of policy has a residual long-term care policy that covers the LTC expenses even after the death benefit is used up paying for the initial LTC expenses.
This benefit is approximately the same amount of the death benefit in addition to the death benefit.
So if the death benefit was $200,000 then the total long-term care benefit would be $400,000. In getting this type of policy, you have overcome the two main objections and also protected your estate from LTC erosion.
A good place to start your research on this type of policy is with Lincoln Financial Money Guard