Long-term care insurance, oh how we need thee but so don’t need your price tag. Sometimes the best options for us are the most expensive. Insurance is a funny thing, we are trading dollars now for much bigger dollars later.
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But is the payoff for a hybrid long-term care policy really worth the cost? We are going to find out, and you will leave a little more informed and with a plan of attack. Let’s get started.
What Is Hybrid Long-Term Care Insurance?
Hybrid long-term care insurance is a hybrid of two policies or vehicles. It is often when you are “linking” a long-term care policy with a paid-up whole life policy or an annuity. These hybrid policies have several benefits, and some may even be worth the pretty penny you are spending on them.
How Much Will This Cost?
A valid question, and this is where the road meets the rubber, so to speak. With everything in this life, the reason for most hesitation when making even a very smart and safe purchase is price.
Even though a hybrid long-term care policy can only benefit you, sometimes the premium is just too much for the consumer. Let's go over a few definitions in the table below that you will need moving forward:
- Death benefit: The amount the insurance company will pay out to your beneficiaries in the event of your death.
- Long-term care benefit: The amount the insurance company will pay out for your long-term care expenses.
- Beneficiary: The person(s) that you name on your policy to receive your benefits in the event of your death.
- Cash value: The cash amount offered to the policy owner upon cancellation of the contract.
Let’s give a very real and very likely estimation of what a hybrid long-term premium could cost. Let’s say you recently received a hybrid long-term care quote with a death benefit of $144,000 and a long-term care benefit of $432,000.
The policy requires a one-time premium payment of $110,000. Most people don’t have an extra $110,000 lying around, but if you did, a hybrid policy could be a really good vehicle, not only for your long-term care, but also as a smart financial decision.
Nowadays hybrid policies have other payment options than paying in full, so you’ll want to discuss that with your independent insurance agent.
Why Wouldn't You Just Invest That $110,000 Instead?
That’s a good thought, or is it? While that seems like a perfectly legitimate alternative, let's explain why you might want to reconsider. Let's say you took that same $110,000 and instead invested it, with an average growth rate of 5%. It would take you 28 years to reach the benefits that the hybrid long-term care policy would already pay out from inception.
These are all things to think about and discuss with your local independent insurance agent.
What Other Options Are There?
Choice, choices. There is an alternative to the hybrid that is usually less expensive, and it's a traditional long-term care policy. A traditional long-term care policy, is well, traditional. You pay in a monthly, quarterly, semi-annual or annual premium for the life of the policy, and if you need long-term care at some point, then your benefits kick in.
There are a number of trade-offs between a hybrid and traditional policy, so let's check out some of these differences below:
- Has a cash value and death benefit most of the time.
- Can be paid up front and most of the time is required.
- You can get your premium back if you change your mind.
- Typically not tax-deductible.
- Pay-as-you-go policy, and typically more cost-effective.
- No cash value option, and you do not get the premium back if your policy lapses.
- Tax-qualified plans can be tax-deductible over 10% of adjusted gross income for regular employees and up to 100% for self-employed individuals.
Do Hybrid Policies Vary from State to State?
While each state has its own laws and regulations, typically when it comes to actual coverage, that is the responsibility of the insurance company. The insurance company is the one writing the policy forms and creating different selections within each policy that are available from a benefits standpoint.
They then associate a premium with the coverages and coverage types and tie in your risk factors as an individual. The riskier you are, the more the premiums will be.
Suffice it to say, there are not really differences in premiums from state to state, either. Meaning the premiums are really determined by your health, your age and the type of coverages you select.
Yes, it's true that certain territories are rated higher, but that is more for your auto insurance or homeowners insurance and not so much for your long-term care insurance.
Why Seek an Independent Insurance Agent?
The best possible person for you to get your long-term care insurance from is your independent insurance agent. There are a number of reasons, including:
- They work with multiple insurance companies.
- They work for you on your behalf, not for the insurance companies.
- They are local and involved in your community.
- They love what they do.
- They don’t keep regular hours most of the time and can be available outside of your typical 9 to 5.
- They educate you.
- They are knowledgeable.
The list goes on. There are some solid reasons above, and that’s not even half of them. So why wouldn't you give one a call?
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Elder Law Answers. June 14th, 2018. Hybrid Policies Allow You to Have Your Long-Term Care Insurance Cake and Eat it, Too. https://www.elderlawanswers.com/hybrid-policies-allow-you-to-have-your-long-term-care-insurance-cake-and-eat-it-too-15541