Determining whether hybrid long-term care insurance is the right choice for you and your family will depend on your individual needs and budget. While a hybrid long-term insurance policy — which combines traditional life insurance with long-term care insurance — has added coverage and flexibility, those benefits come with a higher cost.
What is hybrid long-term care insurance?
A hybrid long-term care policy is life insurance combined with long-term care insurance. This policy covers you if you can no longer take care of yourself and need assistance in a facility or at home. It also pays a death benefit to your beneficiaries when you die. If you don’t end up using the long-term care coverage, your beneficiaries get a larger death benefit.
By contrast, a standalone life insurance policy pays your family a lump sum of money if you die while the policy is active.
There are two main types: term life insurance, which lasts for a set term and then expires, and permanent life insurance, which is a policy that lasts your entire life, or as long as you pay the premiums. Most hybrid long-term care insurance policies are permanent policies.
A standalone long-term care insurance policy reimburses you or directly covers the costs associated with assisted living — whether it’s in a facility or at home.
To activate the benefits of a long-term care policy (and the long-term care benefits of a hybrid life insurance policy), you must be unable to independently perform two of the six activities of daily living (ADLs).
The activities are bathing, eating, getting dressed, maintaining bowel or bladder continence, using the toilet, and walking from one place to another. [1]
What are the pros & cons of hybrid life insurance with long-term care?
When comparing a traditional long-term care insurance policy with a hybrid long-term care insurance policy, there are few things to consider.
Pros of hybrid long-term care insurance
Locked premiums: With a hybrid long-term care policy, the amount you pay won’t change. By contrast, the rates charged for many long-term care policies rise over time, risking the loss of coverage if you can’t pay the updated premiums.
Flexibility in how benefits are paid out: Long-term care insurance policies are usually based on reimbursement: You pay for care, then submit receipts. Hybrid long-term care policies usually pay a set amount over a period of time. For example: You’d get $3,000 a month for three years if you have a $108,000 long-term care maximum. You also have the flexibility to pay a family member to care for you at home.
Spousal discounts: Many hybrid long-term care policies offer a discount if spouses buy their policies together.
Death benefit for your beneficiaries: A hybrid policy pays your beneficiaries a death benefit, while standalone long-term care insurance doesn’t. (The death benefit will be smaller if you use the policy for care, and larger if you don’t use the benefit.)
Cons of hybrid long-term care insurance
Cost: Hybrid long-term care policies are more expensive than traditional long-term care insurance policies (see more on costs below).
Not everyone will qualify: Hybrid long-term care policies require medical underwriting. If you have high-risk medical conditions — for example, a history of cancer, stroke, or heart attack — it may be difficult to be approved.
How much does hybrid long-term care insurance cost?
Prices vary widely by age (the older you are when you buy, the more expensive it will be), health (healthier people will have lower premiums), and marital status (spouses who buy policies together often get a discount).
The way the policy is structured, including whether your benefit grows with inflation, how long you have to wait before benefits are paid out, and your benefit amount, will influence the cost as well.
Many hybrid long-term care policies are paid not with monthly or annual premiums, but with a single, one-time premium that covers the whole of the policy.
For instance, a healthy 55-year-old male applicant could expect to pay a lump sum of about $73,300 for a policy that would provide $180,000 in long-term care benefits and a minimum death benefit of $120,000. [2]
Alternatives to hybrid long-term care insurance
A hybrid long-term care policy isn’t the only way to pay for assisted living and other care expenses. Here are the other options with each type’s pros and cons.
Traditional long-term care insurance
The traditional type of long-term care insurance costs less than hybrid long-term insurance. It may, however, have more limited benefit options — such as the inability to pay a family member to care for you. Also, premiums are not fixed, and there is no death benefit.
How much does traditional long-term care insurance cost?
Long-term care insurance is generally less expensive than hybrid long-term care policies with similar long-term care benefits because it doesn’t include a life insurance component.
An annual premium for a healthy 55-year-old applicant for a policy with $165,000 in benefits might range from $900 to $6,200 depending on their gender and their policy choices. Annual premiums might range from $1,200 to $6,800 for a 60-year-old applicant, and from $1,700 to $7,225 for a 65-year-old applicant. [3]
Some long-term care policies will pay for your care costs for as long as you live, but most policies have limits on how long benefits last, or how much they’ll pay in total. [4]
Self-funding long-term care
Self-funding your long-term care with your savings and/or other assets will save you money on premiums. However, care — especially full-time care — is expensive and you risk needing care for longer than your budget allows. It could also mean that there wouldn’t be any assets left to leave your heirs.
How much does self-funding long-term care cost?
Assisted-living care can cost thousands of dollars per month. These are the median monthly costs for common long-term care services. [5]
In-home care: Home health aides have a median cost of $5,148, and homemaker services have a median cost of $4,957 per month.
Community and assisted living: Adult day health care, which offers a break to caregivers, has a median cost of $1,690 per month. Assisted-living facilities, which provide an intermediate level of long-term care, have a median cost of $4,500 per month.
Nursing-home facilities: The median cost for a semi-private room in a nursing home is $7,908 per month, while a private room costs $9,034 per month.
With inflation, these costs are expected to rise.
Using Medicaid
Medicaid, the federal program for low-income seniors, will pay for long-term care if your income and assets are low enough. Rules and requirements apply.
For example, if you’re not already receiving care when you join the program, Medicaid will choose a care provider for you and your options will be more limited than if you pay on your own. What’s more, using Medicaid could greatly reduce what’s left for a surviving spouse.
Here are the details of how Medicaid works and how to qualify for it.
How does Medicaid pay for long-term care?
Medicaid covers long-term care expenses, but you might not qualify right away. To be eligible for Medicaid, you need to make under a certain income — usually below 133% to 138% of the federal poverty level — and cannot exceed a maximum limit in owned assets. [6]
When applying for Medicaid, you’ll need to release financial documentation from the past five years to the Department of Social Services. This is referred to as the look-back period and affects whether you receive benefits. Screeners will also consider any assets you transferred out of your name in those five years.
Long-term care riders only pay for the first five years of disability. If you plan ahead, Medicaid can pick up where your hybrid insurance plan leaves off. You’ll probably need to carry out a Medicaid asset spend-down.
How to qualify for Medicaid
If your assets don’t already make you eligible, you can go through a process called a Medicare asset spend-down. Here’s what it entails and which assets are considered countable for that purpose.
What is a Medicaid asset spend-down?
Decreasing your net worth to meet Medicaid’s eligibility criteria
There are a few ways to spend down your assets if they exceed Medicaid’s eligibility maximum:
Make home or auto improvements that are considered investments
Pay off outstanding debts
Gift your assets to family members (you’ll owe a gift tax on gifts greater than $17,000)
Open an irrevocable Medicaid trust and transfer countable assets into it
What is a countable asset?
Countable assets are capped for Medicaid eligibility and may need to be a part of your Medicaid asset spend-down plan for the cost of care to be covered. These include:
Savings and checking accounts
CDs and money market accounts
Stocks
Bonds
Real estate that isn’t your primary residence
What are non-countable assets?
Your non-countable assets don’t need to be considered in your Medicaid asset spend-down plan. These include:
Your car
Your primary residence (varies by state and depends on the home’s value)
Retirement accounts, such as IRA or 401(k)
Pre-paid funeral or cremation
Some life insurance policies
Personal belongings
Who should get hybrid long-term care insurance?
Whether you should buy a hybrid long-term care policy depends on your financial circumstances. A 65-year-old today has nearly a 70% chance of needing some degree of long-term care at some point in their life. [7]
If you don’t have the savings to fund both assisted care and an inheritance for your loved ones, a long-term care rider can help protect your heirs from debt while leaving them a death benefit to help secure their financial future.
Is hybrid long-term care insurance right for you?
Planning ahead is pivotal for long-term care. Whether you opt for a hybrid long-term care policy, a standalone long-term care policy, to depend on Medicaid, or to self-insure, talk to a financial advisor early on so you can cover your care while protecting your heirs.
