What You Need To Know About Hybrid Long-Term Care Insurance Plans
With guarantees that promise your money back, hybrid long-term care plans are growing in popularity. Hybrid plans, sometimes referred to as “linked benefits”, combine rich long-term care benefits, with modest life insurance coverage. The plan will refund the difference between the death benefit and your long-term care costs. They also allow you to cancel the plan and get a refund of premium. The key is that your money is coming back to you, one way or the other. Since hybrid plans involve higher up-front premiums, they aren’t for everyone. If you don’t have the funds for these plans, traditional long-term care insurance is still a very reasonable option.
Advantage Hybrids
Hybrid plans can offer the same benefits as traditional long-term care plans, with several advantages.
No rate increases: Since you pay the premiums up-front, or over a few years, there are no rate increases over the life of the policy.
No “use it or lose it” problem: The plan will return your premiums if you cancel, or cover you for long-term care, or pay out a death benefit.
Most plans can either be paid for in a lump sum premium, or installments over a few years. A lump sum payment is the most common, but a 10 year payment plan is also popular.
Many plans have a pricing “sweet spot”, which is the best combination of the monthly benefits, and a total pool of money for your long-term care needs. With a few exceptions, the leading plans usually price their sweet spot with either four or six year’s worth of long-term care benefits.
Inflation Protection
It is very important to look carefully at the numbers. Look at the benefits if you bought today, and what they would be worth in 25 years, with built-in inflation protection. Some plans illustrate higher benefits without the built-in growth, but it’s almost always a much better deal to take lower benefits today, with the growth factor built-in. By your 80’s you will almost always have more monthly benefit coverage if you opt for inflation protection. However, if you are in your upper 60’s or older when you purchase the plan, the growth factor may take too many years to break even to make it worth including.
Tax Saving Transfers
Hybrid plans can be funded from tax-free transfers of the cash values of other life insurance plans you may have owned for a while. You may decide that rich long-term care coverage is more important to you at this stage in your life, than the higher death benefits from these older life insurance plans.
Don’t be intimidated by the process. These hybrid plans are really not that complicated. Look at the guaranteed charts that come with all the quotes that an agent can provide. The key items to look at are the monthly benefit limit, the total pool of benefits, the death benefit, and the surrender value if you were to cancel.
For more information on this, or other topics concerning long-term care planning, contact Mark Baron, at Mark@BaronLTC.com.
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