A traditional life insurance policy pays a death benefit to your beneficiaries when you die. Long-term care insurance pays for in-home or in-facility assistance if you can no longer care for yourself. Hybrid long-term care insurance combines life insurance and long-term care insurance into one policy.
Key takeaways
A hybrid long-term care policy combines traditional life insurance with long-term care insurance.
Hybrid long-term care insurance covers the costs of assisted living if you need daily care and leaves your beneficiaries with a death benefit.
Hybrid long-term care insurance policies are also called hybrid life insurance policies, hybrid life insurance with long term care, combination insurance policies, linked insurance policies, or life insurance with a long-term care rider.
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What is hybrid long-term care insurance?
A hybrid long-term care policy is a life insurance policy that integrates long-term care insurance, generally through a rider. A hybrid long-term care policy pays out part of the policy's death benefit to pay for care if you can no longer care for yourself. Funds are withdrawn from a pool of money, up to a max, to pay for your care, with a minimum amount kept aside as your death benefit for your beneficiaries.
What is life insurance?
A life insurance policy is a type of insurance that provides your family with a lump sum of cash if you die when the policy is active. There are two main types, term life insurance, which lasts for a set term and then expires, and permanent life insurance, which is a policy that lasts as long as you pay the premiums. Most hybrid long-term care insurance policies are permanent policies.
What is long-term care insurance?
Long-term care insurance is a type of insurance that provides tax-free reimbursement or cash to cover costs associated with assisted living. How the benefits are paid out can vary widely depending on the policy. Some policies reimburse you for expenses that you must first cover, others are indemnity plans which pay out benefits to you directly once you meet the criteria of the policy.
To activate the benefits of the long-term care policy (and the long-term care benefits of a hybrid life insurance policy), you must be unable to independently perform two of the six activities of daily living (or ADL). The six activities of daily living are bathing, eating, getting dressed, maintaining bowel or bladder continence, using the toilet, and walking from one place to another. [1]
What are the pros and cons of hybrid life insurance with long-term care?
When comparing a traditional long-term care insurance policy with a hybrid long-term care insurance policy, there are few things to consider:
Pros of hybrid long-term care insurance
Locked premiums: When you buy a hybrid long-term care policy, your premiums will be set and won’t change. Many long-term care policies have rates that can change, which may render them unaffordable and cause you to surrender the policy.
Flexibility in how benefits are paid out: Long-term care insurance policies are usually based on reimbursement: you pay for the care you need and submit receipts. Hybrid long-term care policies, on the other hand, often have more flexibility in how benefits are paid out, including the ability to pay for family to care for you in your home.
Spousal discounts: Many hybrid long-term care policies offer a discount if spouses purchase a policy together.
Death benefit for your beneficiaries, even if you use the long-term care benefit: While a hybrid long-term care policy is costlier than standalone long-term care insurance coverage, some people like the fact that their beneficiaries get a large death benefit if they don’t end up needing the policy for care (if they do use the policy for care, their beneficiaries still get a smaller benefit).
Cons of hybrid long-term care insurance
Cost: Hybrid long-term care policies are more expensive than traditional long-term care insurance policies (see more on costs below).
Not everyone will qualify: Hybrid long-term care policies require medical underwriting. If you have a complicated medical history, like, for example, a history of cancer, stroke, or heart attack, it may be hard to qualify.
How much does hybrid long-term care insurance cost?
Prices vary widely by age (the older you are when you buy, the more expensive it will be), health (healthier people will have lower premiums), and marital status (spouses who buy policies together often get a discount).
The way the policy is structured, including whether your benefit grows with inflation, how long you have to wait before benefits are paid out, and your benefit amount, will influence the cost as well.
Many hybrid long-term care policies are paid not with monthly or annual premiums, but with a single, one-time premium that covers the whole of the policy. A healthy 55-year-old applicant could expect to pay a lump sum of about $75,000 for a policy that would provide $180,000 in long-term care benefits and a minimum death benefit of $130,000. [2]
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Alternatives to hybrid long-term care insurance
If you don’t opt for a hybrid long-term care policy, there are other ways to pay for assisted living and other care expenses, though they come with their own pros and cons:
Traditional long-term care insurance costs less than hybrid long-term insurance, but may have more limited benefit options (such as the inability to pay a family member to care for you). Also, there is no death benefit.
Self-funding your long-term care using your savings or other assets will save you money on premiums, but it can be risky since you may need care for longer than your budget allows. You also may not be able to leave your heirs any assets.
Medicaid will pay for your care if your income and assets are low enough. However, if you’re not already receiving care, the program will choose a care provider for you.
How much does long-term care insurance cost?
Long-term care insurance policies generally cost less than hybrid long-term care policies that offer similar long-term care benefit offerings because they do not include a life insurance component. But the product and its pricing are complex, with choices for how the benefit grows for inflation, how it is paid out, and how long you wait before the benefits kick in.
An annual premium for a healthy 55-year-old applicant for a policy with $165,000 in benefits might range from $950 to $6,400 depending on policy choices and gender. Annual premiums would increase to $1,175 to $6,600 for a 60-year-old applicant and $1,700 to $7,725 for a 65-year-old applicant. [3]
How much does self-funding long-term care cost?
Assisted living care can cost thousands of dollars per month. These are the median monthly costs for common long-term care services: [4]
In-home care: Home health aides have a median cost of $5,148, and homemaker services have a median cost of $4,957 per month.
Community and assisted living: Adult day health care, which offers a break to caregivers, has a median cost of $1,690 per month. Assisted living facilities, which provide an intermediate level of long-term care, have a median cost of $4,500 per month.
Nursing home facilities: The median cost for a semi-private in a nursing home is $7,908, while a private room costs $9,024.
With inflation, these costs are expected to rise.
How does Medicaid pay for long-term care?
Medicaid will cover long-term care expenses, but you might not be able to qualify right away. To qualify for Medicaid, you need to make below a certain income — usually below 133% to 138% of the federal poverty level — and cannot exceed a maximum limit in owned assets. [5]
When applying for Medicaid, you’ll need to release financial documentation from the past five years to the Department of Social Services. This is referred to as the look-back period and affects whether you receive benefits. They’ll also consider any assets you transferred out of your name in those five years.
Long-term care riders only pay out for the first five years of disability, but if you plan ahead, Medicaid can pick up where your hybrid insurance plan leaves off. You’ll need to carry out a Medicaid asset spend down.
Who should get hybrid long-term care insurance?
Whether you should buy a hybrid long-term care policy depends on your financial circumstances. After age 65, 69% of Americans will require assisted care for an average of three years. Twenty percent will require care for more than five years. [6]
If you don’t have the savings to fund both assisted care and an inheritance for your loved ones, a long-term care rider can protect your heirs from debt while also leaving them a death benefit that can help secure their financial future.
Is hybrid long-term care insurance right for you?
Planning ahead is pivotal for long-term care.. Whether you opt for a hybrid long-term care policy, a standalone long-term care policy, to depend on Medicaid, or to self-insure, talk to a financial advisor early on so you can cover your care while protecting your heirs.
