Insurance companies have developed hybrid products that combine the features of life-insurance or annuities with long-term-care benefits. This is an option that’s worth considering.
Hybrid plans combine the benefits of long-term-care coverage with either life insurance or an annuity. In the event the policyholder needs long-term care services, the insurance company pays funds from the linked annuity or life-insurance contract.
One reason that these hybrid policies are popular is that the insurance company can be directed to pay any unused funds remaining in the long-term-care policy in addition to the payments from the life insurance policy or annuity.
Additionally, these combined policies guarantee coverage at a fixed price, which gives policyholders a way to hedge against the premium increases that occur with traditional long-term-care plans and, for those with marginal health, a hybrid policy may be easier to obtain than a traditional long-term-care policy.
Deficiencies of Hybrid Plans
Those who must use anticipated life insurance benefits for long-term-care benefits will reduce or eliminate payouts available to the estate or beneficiary. If the primary goal is to create an estate or funds to funds to preserve an estate, a hybrid policy may not be a good choice.
Those who buy hybrid products usually pay a single upfront premium. For example, a 60-year-old couple would pay about $200,000 to obtain $4,500 per month in coverage for each person, payable over a six-year benefit period.
The same couple might be better off purchasing the same benefits with a regular long-term-care policy for about $2,200 a year because this would allow them to keep the $200,000 they would pay in premiums for a combined policy. Investing these funds in an investment that earns at least 3% annually after taxes would generate $6,000 per year, which would be sufficient to cover the couple’s long-term-care premium and pay for life insurance policies.
Couples with combined policies such as these do not qualify for the partnership programs many states offer for regular long-term-care policies. With a tax-qualified long-term-care plan, those who deplete their traditional long-term-care benefits may qualify for Medicaid and protect more of their assets than they would using a hybrid plan.
These considerations are complex and Raymond Lavine can help you find the best options to fit your needs and your budget. For more information, contact Raymond Lavine.