The Pros and Cons of Hybrid Long-Term Care Insurance

Thang Truong
Thang Truong
Updated on:

We’re all living longer these days. Unfortunately, as we live longer, some of us will require some form of long-term care. You could purchase long-term care insurance, but if you don’t need long-term care, all of the money you spent in premiums is wasted. That’s where a hybrid long-term care/permanent life insurance policy can come in and solve this problem. 

How does a Hybrid Long-Term Care Insurance Policy Work?

It’s no secret that as health care costs have skyrocketed in recent years, so has the cost of long-term care insurance. The average cost of a long-term care policy for a single, 55-year-old man is $2,727 a year. That’s expensive if you use the insurance, and if you don’t wind up needing long-term care, that’s a lot of money that you’re basically throwing away. However it is cheaper than hybrid long-term care insurance.

>>MORE: The Best Traditional Long-Term Care Insurance Companies

With hybrid long-term care/insurance policies (also called linked policies) if you don’t use the long-term care insurance, your beneficiaries get the money through the life insurance when you die. 

Many companies don’t even offer long-term care insurance anymore. Health care costs have risen dramatically, resulting in premium hikes, unhappy customers and a mass exodus from the market. Whereas there used to be hundreds of companies offering long-term care insurance, now there’s only about 20. 

Usually, to purchase a hybrid policy, you’ll have to put down a significant lump sum premium or several lump sum premiums over the course of just a few years. Then you’ll be able to access some or all of the long-term care benefit if you need it. If you do use the money for long-term care, your death benefit is reduced. You could reduce your death benefit down to nothing, although some companies leave a little bit of money to cover final expenses. 

>>MORE: The Best Hybrid Long-Term Care Insurance Companies

Pros and Cons of Hybrid Long-Term Care Insurance Policies

– No risk of throwing away thousands of dollars in premiums if you don’t need long-term care
– Should you need long-term care, they can be cost-effective
– Even if you don’t need long-term care insurance, you can get either your premiums back or leave death benefits to your heirs
– Premiums stay level
– Old insurance policies (such as whole life) can be rolled over via a 1035 exchange
– The odds are that you will need some type of long-term care when you are 65 or older
– They require a lot of money upfront, but might have some tax benefits
– If you need long-term care, you may reduce the death benefit so much that your heirs get nothing
– A stand-alone long-term care insurance policy is cheaper

>>MORE: Life Insurance with Long-Term Care Benefits

>>MORE: Tax Benefits of Long-Term Care Insurance

Who are These Hybrid Long Term Care/ Life Insurance Policies For?

People who are worried they will need long-term care and don’t want to lose the money they paid in premiums if they don’t. In addition, they should have a decent amount of money available to pay the lump sum premium. Also, if they use all the money for long-term care, they should be comfortable with the fact that their heirs won’t get any money when they die.

If you do have this money available, they do offer some advantages. Say you purchase a policy with a death benefit of $165,000 and $500,000 worth of long-term care. You purchase this policy with $100,000 up front. If you do need long-term care, this makes the cost of such care very reasonable for you, as you get $500,000 worth of medical care for just $100,000. If you don’t need long-term care, your heirs receive a $165,000 tax-free payment when you die. If you change your mind, you’ll get your $100,000 back.

As you can see, this works out much better than if you had invested that $100,000. Assuming a 5% return, over twenty years you would have $265,329 available. That’s not bad, but it’s only half of what a hybrid policy would allow you in long-term care benefits. 

For this all to work, you have to have the initial investment available. Then you have to need long-term care down the road, and you have to need it for several years. If all that is true, then hybrid policies are a very good value. 

>>MORE: How Much does Hybrid Long-Term Care Insurance Cost?

>>MORE: Accelerated Death Benefits (ADB) in Life Insurance for Long-Term Care

Convert a Permanent Life Insurance Policy into a Hybrid Long Term Care Insurance Policy

If you have a permanent life insurance policy sitting around that you no longer need (perhaps your heirs are financially independent) you can buy a hybrid long-term care policy through a 1035 exchange. If you had a cash value account of $200,000 in your whole life or indexed universal life insurance policy, you could use that money to purchase a hybrid policy rather than surrendering or canceling the permanent life insurance. This would save you from possible income taxes and fund your future long-term care needs at the same time. 

Buy a Permanent Life Insurance Policy with a Chronic Illness Rider or Long Term Care Rider

Many life insurance companies offer a free chronic rider to their permanent life insurance products. This is a great option since you will get some long term care benefits if and when you need it, the main benefit of the policy is still for life insurance coverage. If you are interested in this option, the life insurance companies offering this rider are North American Life Insurance Company, Symetra, and Mutual of Omaha.

Some life insurance companies offer a more comprehensive long term care coverage with a paid chronic rider. This will increase your premiums a bit, but the rider will provide you with long term care coverage if and when you need it. The companies that offer this rider are Securian Financial (or previously known as Minnesota Life), Protective, Prudential, Symetra, American General, and Lincoln Financial. Yes, Symetra offers both a free rider and paid rider. Paid rider offers a much more comprehensive coverage for long term care.

Together with terminal illness rider, they are known as accelerated death benefits (or ADB) in life insurance policy. You have to choose this as an option when you purchase the policy—you can’t add it later on. You’ll get some long-term care coverage if you are diagnosed with a qualifying illness, although generally not as much as with a hybrid, or linked, policy. 

>>MORE: Long-Term Care Rider vs. Chronic Illness Rider: How Are They Different?

Buy a Hybrid Long-Term Care Insurance Policy

Compare quotes from multiple insurers. Make sure you know what kind of benefits you’re getting. Costs and benefits vary by a lot, so make you shop around before you decide on the best policy for you. You might also want to price long-term care insurance and life insurance as separate policies to see which makes the most sense. Also, if you don’t really need life insurance, hybrid policies might not make any sense for you. 

>>MORE: The Best Hybrid Long-Term Care Insurance Companies

Last Thoughts

Hybrid long-term care policies, or linked policies, seek to combine life insurance with long-term care insurance. Make sure you have a need for both types of policies before you buy. These are complex policies, so you might want to work with a financial advisor or a licensed life insurance agents to figure it all out. In exchange, you’ll get the peace of mind from knowing whatever happens, you and your spouse will have options.

Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

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