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Long Term Life Insurance: Hybrid Policies Defined

Long term life insurance often refers to long-term care insurance or permanent life insurance, but with a hybrid policy, it can be both. If you have long term life insurance needs, find out how a hybrid insurance policy can provide lifetime, permanent coverage that is customized to fit your needs with a variety of living benefits including long-term care.

What is a Hybrid Life Insurance Policy?

Hybrid life insurance is a type of permanent life insurance that combines two or more types of coverage into one policy. By combining multiple types of long term life insurance under one umbrella, a policyholder may pay less in total premiums compared to owning multiple types of insurance policies and may have more flexibility with how the benefits of an insurance policy are used.

Hybrid policies offer two kinds of benefits: living and death. Living benefits, like long-term care, can be utilized by the policyholder while they are still alive. A death benefit is utilized by the policyholder’s beneficiaries after the policyholder passes away. 

When it comes to long term life insurance needs, there are a few different types of hybrid policies to consider.

Types of Hybrid Life Insurance

The two most common types of hybrid life insurance are:

  1. Linked-benefit 
  2. Long-term care rider + whole life insurance

Linked-Benefit 

Linked-benefit policies focus primarily on long-term healthcare needs. You and your insurance company or insurance broker determine how much coverage you’ll need for out-of-pocket healthcare costs, which is the face value of the policy, and your premium payments will be reflected accordingly. Typical linked-benefit policies provide 5X the coverage of your total premium and have maximum payout limits. 

Should you end up not needing long-term life insurance coverage, linked-benefit policies will pay out a death benefit to your heirs. The death benefit is typically less than you would have received as a living benefit for long-term care, but more than what you paid in premiums. Essentially, no matter what your future healthcare needs are, either you or your family will receive money from your insurance company, so you don’t have to worry about paying premiums and getting nothing in return.

Long-Term Care Rider + Whole Life Insurance 

With long-term care rider + whole life insurance policies, long-term healthcare needs are secondary to other benefits of whole life insurance, like cash value, tax advantages, asset protection, liquidity, and a death benefit. 

For this type of hybrid life insurance, when you set up a new whole life insurance policy, you ask your Wealth Strategist or insurance broker to add a long-term care policy rider to your whole life policy.  Should you end up needing long-term care in the future, your policy rider will allow you to access a portion of your death benefit to pay for associated healthcare costs. This amount is deducted from the death benefit, although some insurance companies also pay out additional long-term care compensation. 

Long-term care policy riders aren’t the only types of supplemental insurance available to you with a whole life policy. You may also choose to customize your benefits with policy riders for disability, chronic illness, or terminal illness, to name a few. 

Long-term care policy riders are less expensive than traditional long-term care insurance policies and can be an efficient way to get coverage while still tapping into all the various benefits associated with whole life insurance.

Whole life insurance earns a guaranteed rate of return and may earn potential dividends when structured through a mutual insurance company. This growth is added to the cash value of your insurance policy, which you can access via tax-free policy loans. Policy loans can be used for anything at any time and are not limited to long-term care eligibility. 

This ability to amass tax-advantaged wealth you can use during your lifetime, plus a guaranteed death benefit and long-term care coverage are what make long-term care rider + whole life insurance coverage so appealing.

Do I Really Need Long-Term Care Life Insurance?

Data indicates 70% of adults in America will require some form of long-term care after retirement, but nearly 90% of adults don’t have a plan to pay for it. Medicare and private health insurance don’t cover long-term stays at assisted living facilities, adult day care, Alzheimer’s facilities, or in-home health and hospice care, and Medicaid will only cover these costs if you fall under certain income and asset thresholds, which vary by state.

Often, the cost of long-term care and the responsibility of caring for an elderly adult falls on adult children, which can mean a decrease in work hours, loss of income, and increased expenses associated with caring for an elderly parent, not to mention the emotional toll of being a full-time caregiver.

Creating a long-term care plan can help alleviate stress on family members and even help ensure you pass on a legacy to your loved ones. 

How Much Coverage Do I Need?

With private nursing home costs averaging $105,000/year and most individuals needing an average of 3 to 5 years of long-term care, most people would need coverage to the tune of $300,000 to $500,000 dollars, assuming all long-term care costs would be paid by their insurance. Coverage needs decrease if an individual shares a room in a nursing home, opts for in-home care, or doesn’t need full-time assistance.

The unpredictability of future care needs and rising medical costs can make it difficult to estimate just how much long-term care insurance you need. You want sufficient coverage, but you don’t want to end up paying for coverage you won’t use. That’s where  the benefits of hybrid policies outshine traditional long-term care insurance. 

Benefits of Hybrid Insurance Policies

Underwriting

Hybrid insurance policies are known for being easier to qualify for than traditional long-term care insurance, even if you’re older. In fact, most people start considering long term life insurance needs in their 50s and 60s. While it’s true that younger, healthier individuals may lock in better premiums, it’s still relatively easy to obtain a hybrid policy to fit your needs as you approach retirement. 

Premiums

The downside of traditional long-term care policies is there are no guarantees. If you don’t end up needing long-term care, you lose all the money you’ve paid in premiums, and with traditional long-term care policies being known for rising rates and unpredictable costs, that could mean a big expense with no benefit in return.

Hybrid policies often offer level premiums guaranteed not to go up. You can even choose if you’d like to pay your premiums annually or in one lump sum. Hybrid policies are more expensive than traditional long-term care insurance, but come with additional benefits like cash value, tax advantages, and a death benefit. If you’re in the market for a comprehensive insurance product that will also offer protection in case you need long-term care, a hybrid policy may be right for you.

Claims

In addition to being able to choose how you pay your hybrid long term life insurance premium, you can also choose how you receive your long-term care claim. Hybrid policies usually give you the option of taking a lump sum or monthly payouts. 

Unlike traditional long-term care policies, which reimburse you for specific expenses, hybrid policies provide more options for how your money can be used. For example, a payout from a hybrid policy could be used to compensate a family member who cares for you and has taken time away from their job to do so. And hybrid policies typically earn cash value which can be withdrawn or borrowed as an additional source of funds.

When Does Long-Term Care Insurance Pay Out?

To be considered eligible for long-term care, an individual must prove they are unable to complete certain daily tasks without assistance. Called Activities of Daily Living (ADL), they include being able to feed, bathe, and dress yourself, having bladder and bowel control, the ability to move on your own, and being able to use the restroom without assistance.

Individuals who cannot complete at least two of these six criteria on their own may be eligible for long-term care insurance benefits. Other events that may trigger benefits include cognitive impairment, like Alzheimer’s disease or dementia, and conditions determined by your doctor or medical professional to be prohibitive in allowing you to care for yourself.

How to Get Long Term Life Insurance 

Paradigm Life works with the nation’s top providers of hybrid life insurance policies and can help you tailor a policy to your needs with a free consultation. Our Wealth Strategists can also help you convert other permanent insurance products, like universal life insurance, into a hybrid product designed for rapid growth of cash value with customized riders for long-term care needs. 

During your virtual consultation, you’ll be asked questions about your financial goals, your family’s needs, assets and income. You’ll also be asked to complete a financial questionnaire. This helps your Wealth Strategist choose long term life insurance products and policy riders that fit your budget and provide benefits that are best suited to your unique situation. 

Once you decide on a long term life insurance product, you’ll fill out an insurance application and may need to complete a medical exam. We’ll help you schedule your exam and it can even be done in your own home. Your exam results will be submitted with your insurance application in a process called underwriting. Once your application is approved, you’ll be asked to pay your insurance premium. At this point, you are insured. Don’t put off getting the long-term care coverage you need. Schedule a complimentary consultation with a Wealth Strategist to discuss hybrid life insurance today.