Hybrid Policies

Some permanent life insurance policies include LTC benefits. Designed to alleviate the concern about paying for LTC insurance you may never use, hybrid policies allow you to advance your death benefit to help cover the cost of LTC. These policies can be used to pay for LTC expenses and will also pay a death benefit to your heirs. There are several variations on the theme:

• Linked Benefit Life Insurance links life insurance with LTC, providing both coverages under one policy. It provides a pool of money to pay for LTC, but if you don’t use any or all of it, your beneficiaries receive the rest as life insurance proceeds. Linked benefit policies are funded with a single lump sum or premiums paid over a set period of time, generally five to 20 years. Your LTC benefit amount is generally four to five times the premium amount. For example, a $100,000 premium secures a $500,000 benefit that can be used for LTC and/or paid to your heirs.
• Life Insurance with an LTC Rider also lets you use some of a standalone life insurance policy’s death benefit to pay for certain LTC needs. Any LTC benefits used will reduce the death benefit, but this approach can be a more affordable way to obtain LTC insurance than a linked benefit policy. LTC benefits are generally less attractive than those of a traditional LTC or linked benefit policy.

Hybrid polices have several advantages. Premiums are guaranteed not to change over time, and it’s easier to qualify for coverage. (A medical exam may still be necessary, but the requirements are generally less stringent.) Permanent life insurance policies build cash value that you can use to cover any expenses or needs – including paying a family member to provide care for you.

There are some drawbacks. Paying your premium upfront requires a significant investment, you may lose some traditional LTC tax advantages, and not all hybrid policies offer inflation protection.

LTC Annuities

LTC Annuities generally require less underwriting than hybrid life insurance policies or traditional LTC, and can double or triple your annuity investment in the form of LTC benefits. Like standard annuities, LTC Annuities can be funded with an initial lump-sum payment or in installments. These annuities provide increased cash flow—up to two to three times your total premium—should you need extended care.  If your LTC benefits are never triggered, you’ll still earn a yield from the annuity.

Most carriers offer inflation riders beyond the expected interest rate return, and LTC annuities also come with tax advantages. They can be funded by non-taxable 1035 exchanges and, like traditional LTC insurance, benefits paid for qualified LTC expenses are tax-free.

Conclusion

When shopping for LTC insurance, hybrid life and annuity products may be worth considering. Both offer protection against the high cost of LTC without the fear of losing your premium investment. An LTC Advisor can help you assess your options.