As the name indicates, hybrid life insurance is an insurance policy formed by two different types of life insurance policies. The attributes of separate life insurance products are appealing, and so the hybrid policy was born to combine these features. Here, we’re talking about hybrid long-term care insurance. These hybrid policies merge the benefits of a permanent life insurance policy with the advantages of a long-term care insurance policy.
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Long-Term Care Coverage, Benefits with Many Shades
“Long-term care” (LTC) is a wide-ranging term that encompasses a variety of different types of care. LTC coverage provides financial protection for long-term care medical services and personal care, including:
- Diagnostic services
- Preventive services
- Curative services
- Therapeutic services
- Rehabilitative services
- Personal care
The cost of long-term care differs from state to state, and the annual cost ranges from $20,000 to over $100,000, depending on the services and level of care received. Considering the high cost of long-term care, policyholders and their loved ones have the assurance of financial security and the added security of knowing that someone will be there to provide care if they cannot.
Long-term care benefits usually cover the following types of personal care:
- Assisted living care
- Nursing home services
- Hospice care
- Adult day care
- Home healthcare
- Residential community living services
- Respite care (temporary respite for a family member who is the caregiver)
It is commonly believed that health insurance, Medicare specifically, provides long-term care services. In reality, Medicare only covers the first 100 days in a skilled nursing facility. Medicare covers long-term care costs for the first 20 days. After 20 days, you must pay coinsurance, and after 100 days, you are required to pay for all LTC services.
A Medicare supplemental policy covers coinsurance in a skilled nursing facility, but not beyond the 100-day Medicare benefit period. Medicaid offers lengthened nursing home costs but is the “provider of last choice,” and to qualify, your personal assets must be near poverty levels.
Typically, long-term care services are necessary when a person cannot perform independently due to a mental or physical condition. For the policy to pay out, the policyholder must meet the benefit trigger that was agreed upon in the contract.
Benefit triggers usually include the inability to perform two or more activities of daily living, loss of cognitive ability that hinders your ability to take care of yourself without supervision, and medical necessity recommended by a doctor.There are six activities of daily living, or ADLs, observed by long-term care insurance:
- Transferring, such as a chair to a bed
- Going to the bathroom
There are three levels of long-term care covered by LTC benefits. Skilled nursing care, intermediate care, and custodial care. Skilled nursing care is usually delivered in a nursing home and is continuous 24-hour care by licensed medical professionals under the direction of a physician.
Intermediate care is extended care that addresses your condition but not for 24 hours a day. Care is given by registered nurses, licensed practical nurses, and nurse aides under a doctor’s supervision. Intermediate care can be delivered in a nursing home, at your home, in an assisted-living facility, or in a residential community living center.
Custodial care is provided to help people meet daily living requirements or ADLs. Custodial care does not have to be given by a medical professional, but it must be monitored by a physician. Care can be delivered in nursing homes, assisted living facilities, respite centers, or adult day-care centers or as home care.
Long-term care costs are repaid to beneficiaries in two ways, depending on your contract. A long-term care indemnity contract is a valued contract, where the stated amount is paid even if the cost of care is less. These types of contracts may be subject to income tax.
More commonly, insurers offer reimbursement contracts. Reimbursement contracts restrict benefits to your actual long-term care expenses. They also do not exceed the maximum benefit amount stated in the contract.
Long-term care indemnity and reimbursement contract benefit amounts are expressed as monthly benefits or flat daily amounts, such as $100 or $200 per day, for the length of the benefit period.
Long-term care plans have an elimination period or waiting period. The longer the elimination period, the less expensive your premium payments will be. Most insurance companies offer elimination periods of 0 to 90 days. After the benefit trigger is met, your policy’s elimination period is counted by service days or calendar days.
If your LTC insurance plan has an elimination period set by service days, your policy will pay out benefits after you’ve received care for the amount of time specified in your contract. If your elimination period is counted by calendar days, a predetermined number of days must pass after the benefit trigger before the policy pays out.
As with other forms of life insurance, LTC insurance contains exclusions for things that are not covered. These exclusions include alcohol and drug dependency, suicide and self-inflicted injuries, conditions that result from war, conditions due to criminal activity, and any type of injury or illness that can be covered by workers’ compensation.
How Does Hybrid Life Insurance Provide LTC Insurance?
Traditional or stand-alone long-term care insurance does not provide a death benefit to your beneficiaries. With a traditional long-term care insurance policy, if you never meet a benefit trigger (i.e., you don’t use it), you walk away with nothing. A hybrid long-term care insurance policy provides a death benefit, long-term care coverage, and cash value.
Traditional long-term care insurance and hybrid long-term care insurance provide benefits for the same services at the same facilities and have the same benefit triggers. Their contracts also contain the same provisions, exclusions, and an elimination period. The major difference between the two policies is that a hybrid long-term care insurance policy combines a permanent life insurance policy with an LTC policy.
Permanent or whole life insurance lasts your entire life and develops cash value. Hybrid LTC policies link whole life insurance, such as universal life insurance, with long-term care insurance. Hybrid LTC policies provide the benefits of a whole life policy and a long-term care policy.
A hybrid long-term care insurance policy provides financial protection against long-term care expenses by providing the savings and investment features of a whole life policy along with long-term care benefits. The cash value of your permanent policy is used as a living benefit and can be used to cover the cost of long-term care. If you’ve exhausted the cash value of your policy, the death benefit is used to cover LTC expenses.
If you do not ever need to use your hybrid long-term care policy for LTC expenses, your beneficiaries will receive the full amount of your life insurance death benefit. If you partially use the death benefit for LTC, the remaining benefit amount goes to your beneficiaries. Generally, hybrid LTC policies have a minimum death benefit that will go to your beneficiaries even if your long-term care costs surmount the death benefit.
To have a death benefit for beneficiaries with a traditional long-term care insurance policy, policyholders must purchase a return of premium rider. This rider does not come cheap and delivers a portion of your paid premiums to your beneficiaries. The amount of your returned premiums is subject to whether you used the policy and how much you used it for LTC coverage.
Life insurance companies may offer optional benefits with hybrid long-term care policies and traditional long-term care policies. These options require an additional premium and include inflation protection. Life insurance agents must inform applicants that an inflation protection option is available. This option increases the death benefit on an interest basis, such as five percent per year.
Medical underwriting for hybrid long-term care policies is usually less demanding than traditional long-term care policies. Traditional LTC policies are typically available to applicants between the ages of 40 and 85. Underwriters for both types of policies must assess how long an applicant will be able to perform ADLs. Younger applicants in good health have less expensive premiums.
Traditional long-term care policyholders usually pay insurance premiums on a month-to-month basis, and most often, the premium increases over time. A hybrid LTC policy is typically more expensive than a traditional LTC policy. Premium payments are accepted as a single premium or in limited payments.
A single premium payment on a hybrid LTC policy encompasses the minimum death benefit and long-term care coverage. Limited payments on a hybrid LTC policy usually do not exceed a span of 10 years. Limited premiums for hybrid LTC are level and guaranteed. Whether you pay a single lump-sum premium or limited premiums, cash value continues to grow as long as the policy is in force.
You can obtain long-term care benefits by attaching a long-term care policy rider to a whole life insurance policy or an annuity. A long-term care policy rider attached to a whole life policy is not as comprehensive as a traditional LTC policy or a hybrid LTC policy. LTC policy riders are rarely an option for term life insurance policies, which last for a set amount of time.
Benefits for long-term care rider options are either generalized or integrated. A generalized long-term care rider‘s benefits are separate from the policy’s death benefit. LTC benefits paid to the insured do not affect the policy’s face amount, and beneficiaries receive the full death benefit. This option is more expensive than the integrated option.
Integrated long-term care riders are connected to the policy’s death benefit. Long-term care benefits are paid out from the policy’s face amount, usually up to between 70 and 75 percent. When you pass away, your beneficiary receives what remains of the death benefit.
Are Hybrid LTC Policies Tax-Deductible?
Most traditional, and hybrid LTC policies are tax-qualified.. A traditional LTC plan’s premium payments are identified as a qualifying medical expense for federal income tax purposes. Traditional LTC benefits may be included with your other out-of-pocket medical expenses. The amount of the premiums you paid that can be deducted depends on maximum limits that are based on your age.
A hybrid policy‘s premium payments are also tax-deductible, but only the portion of the premium that funds the long-term care coverage is qualified. To be clear on what portion of your hybrid long-term care policy premiums may be tax-deductible, speak with your life insurance company.
Is Hybrid Life Insurance Worth It?
A hybrid life insurance policy is generally more expensive than other forms of insurance that can deliver long-term care. But the advantages include broader coverage and a death benefit. If your long-term care needs are as much of a concern for you and your loved ones as a death benefit, then these policies are an excellent option.
Furthermore, since long-term life insurance policies are typically more expensive than other forms of life insurance, people in higher income brackets are suitable candidates for these types of policies. However, affluent candidates may choose to self-insure, such as with a traditional IRA.
Let Insurify help you find the right policy to meet all your long-term care needs at the price that fits your budget. Whether you tailor a whole life policy with an LTC rider, prefer a hybrid policy, or would like stand-alone long-term care benefits, Insurify will set you on the right path to meet your insurance needs at the right price.
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FAQ: Hybrid Life Insurance
Are long-term care riders on life insurance a good deal?
Long-term care riders attached to your life insurance policy are a more affordable option than a hybrid or traditional long-term care policy. The downside of LTC riders is that coverage is not as comprehensive as with hybrid and stand-alone policies.
Doesn’t health insurance cover long-term care?
Health insurance does not cover long-term care. Medicare pays only for the first 100 days of long-term care services, after which you are expected to pay for the services yourself. Medicaid offers extended long-term care, but your assets must be limited to qualify.
If my long-term care costs exceed the face amount of my hybrid LTC policy, will my beneficiary receive anything?
Typically, most hybrid LTC policies provide a minimum death benefit that long-term care payments don’t touch. Your beneficiaries will still get the minimum death benefit even if your LTC needs outweigh the face value of the policy.
Hybrid long-term care is a life insurance policy created to appeal to life insurance customers. For many, the joining of the two is a perfect combination that ensures financial protection for end-of-life expenses and leaves something behind for your loved ones.
You can save time and money by using Insurify to pinpoint which long-term care insurance policy is the best choice for you. With Insurify, you can compare quotes and policy options in minutes. Choose the best life insurance company and policy for you, and even purchase in a matter of minutes.
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