Traditional Long-Term Care Insurance vs. Hybrid Policies

April 22, 2014


Both traditional long-term care insurance (LTCi) and hybrid products have their own sets of advantages and disadvantages. The best choice for you depends on your unique circumstances. To help you decide which to choose, it’s best to have a clear comparison between the two.

LTCi is a sure-fire way to get covered against care expenses that you might incur in the future.

But given the high cost of care, premiums are likely to go up. Since the price tag of a traditional policy is on the rise, hybrid products are also being offered in an effort to cut down on costs for future care needs.

Traditional Long Term Care Insurance Policy

As its name implies, a traditional policy is designed to cover the long term care expenses of the policyholder. However, most people are anxious about purchasing this plan because of its high cost as well as the possibility of not using it.

However, LTCi has a lot of benefits that you should consider. First off, it tackles long term care needs head on. Meaning, your premiums will be used to provide you with comprehensive care coverage. If you’re a long term care insurance policyholder, you have the freedom to choose how and where you will receive care. More so, you also have the say with regards to how long your policy will be in effect. It can last for a few years or even for the rest of your life.

Because of this concern, some life insurance companies combine the features of long term care insurance with life insurance or fixed annuity.

Hybrid Policies

Hybrid policies were created in order to give people a cost-effective way of covering themselves for long term care expenses while benefitting from life insurance or a fixed annuity. Typically, long term care benefits are incorporated through a rider.

Annuities work by providing a steady stream of income during your retirement. Now, you can build a pool within it for long term care needs by paying for an additional rider which can cost by up to 3% per year. If you have $100,000 in an annuity today, the amount you can use for long term care can be twice that amount in 7 years if you pay for the rider.

Long term care benefits through life insurance are also incorporated into the policy through a rider. Once you have that add-on, you can tap your death benefit to use for long term care. What’s left of the benefit will be awarded to your beneficiaries once you’ve gone.

Hybrid policies seem cost-effective, but it is not right for every individual. Though long term care components can be incorporated into them, the coverage is still not as comprehensive as that of a traditional policy. More so, remember that you have to pay an additional cost for the riders. Though its price is relatively smaller than an individual long term care insurance plan, its coverage is not as wide as a stand-alone long term care insurance policy.

Meanwhile, LTCi can have a return of premium rider which assures that all or a portion of your premiums would be returned to your named beneficiary if you didn’t use your benefits during your lifetime. More so, you can be allowed to qualify for Medicaid benefits without spending down your assets if your LTCi is under a Partnership Program. Hybrid products don’t have these features.

Which one is for you?

The policy that is right for you will depend on your needs and financial capabilities. For instance, if you still need life insurance by the time you need long term care coverage, then a hybrid product can be cost-effective for you. However, if you don’t have a need for life insurance at all, a traditional LTCi product is a better option. The most important thing is that you are covered with a policy that will protect your finances against rising long term care costs.

According to Genworth’s 2013 Cost of Survey, the median annual cost of nursing homes increased from $67,527 to $83,950 in a span of just 5 years with an increasing rate of 24 percent. Meanwhile, within a year, from 2012-2013, Genworth also found that the increase in rates was at four percent.

Apart from nursing home care, other care settings have also increased. The median annual cost of an assisted living facility has increased by 23 percent in a span of five years. Meanwhile, in-home care services such as homemakers and home health aides have also increased, though not as dramatically as the other settings.

Though hybrid policies can shoulder long term care expenses, nothing beats the wide range of coverage that a traditional long term care policy can provide. Its cost can be intimidating at first glance; however, what you pay for its premiums is smaller as opposed to what you will pay out-of-pocket if you’re uninsured. To get the best deal, choose a coverage that your financial capability can sustain. Remember that the best long term care insurance is not the most expensive, but the one suited to your needs.

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