Hybrid Life Insurance and Long Term Care (2024)

A hybrid life insurance policy pays for long-term care if you need it or a larger life insurance benefit when you don’t. You are covered if your health declines over time or if you pass away suddenly.

The long-term care benefit pays for home care, facility care and care provided by family members. If you use all of the benefit amounts, your family is still protected with a small death benefit.

Long-term care is not generally covered by private health insurance or Medicare, so it’s important to create a plan to help protect yourself and your family from the financial and emotional impact of a possible long-term care event.

Long-term care includes services that assist those who can no longer perform activities of daily living (ADLs), such as dressing, eating and bathing on their own. According to a study published in the National Library of Medicine, chronic illness, physical impairment or cognitive issues such as Alzheimer’s disease are the most common reasons someone would need this type of assistance.

Most people don’t realize how much long-term care can cost. In-home care may run more than $60,000 annually, while a private room in a nursing home averages more than $100,000 a year.

A life insurance company will issue hybrid policies to pay for long-term care that regular health insurance or Medicare won’t cover. If you don’t max out the long-term care benefits, the insurer may pay a benefit to your beneficiary upon your death. Some policies guarantee 10% or 20% of the full death benefit.

You can pay for a hybrid policy in a single lump-sum premium or individual annual premiums, depending on your finances. According to the American Association for Long-Term Care Insurance, the average cost of a single-premium combination policy is $75,000 for a 55-year old male with a minimum death benefit of $130,000, but there are several factors to consider to determine what your coverage will be.

Life insurance policies that include long-term care benefits are permanent life insurance policies. There are a few different types of hybrid policies to choose from.

Linked Benefit Life Insurance

This is a true hybrid policy, and typically the long-term care benefit amount of this type of policy equals about five times the premium you pay. For example, a healthy 55-year-old man who paid a $100,000 lump sum premium could get long-term care benefits worth nearly $523,000. The death benefit would be $174,000 based on current premium estimates.

Long-Term Care Rider on a Life Insurance Policy

When you buy life insurance, you may have the option to add a long-term care rider. However, these benefits are less attractive than those of a traditional long-term care or linked-benefit policy. This strategy may make sense for someone more concerned about life insurance coverage than long-term care needs.

Chronic or Critical Illness Rider on Life Insurance

Adding these riders when you buy a policy means you can later take money from your policy’s death benefit to pay for care if you have a chronic illness that will last for the rest of your life.

Hybrid life insurance policies make sense in many cases, but there are benefits and drawbacks you should consider before buying a policy.

Pros of Hybrid Life Insurance

• Choice of care setting. Many long-term care policies let you choose where to receive care, including at home, in a community setting, in an assisted living facility or in a nursing home. Some policies provide benefits that allow you to make home modifications that can help you stay at home longer.
• Consistent premiums. Premium costs are guaranteed, which makes long-term financial planning simpler.
• Premium payment flexibility. You can make a single lump sum payment or pay premiums over time. Traditional long-term care policies typically don’t offer a single premium payment option.
• Easier to qualify for a policy. Underwriting tends to be less stringent with a hybrid policy than with a traditional long-term care policy, and exclusions may be less onerous.
• You can pay a family caregiver. Some hybrid policies that use an indemnity model let you pay a family member who provides care for you.
• Cash value option. Permanent life insurance policies build cash value which you can use to cover any expenses or needs.

Review the best senior life insurance solutions.

Cons of Hybrid Life Insurance

• You may not get the best coverage for your money. If your primary concern is long-term care, you’ll get more coverage for your money with a stand-alone long-term care insurance policy.
• Longer elimination periods. Elimination periods are the time you must wait before you start getting benefit payments. The period you must wait before benefits kick in with hybrid policies is typically 90 days. Traditional plans can have elimination periods before you can use them that range from 30 days to two years. However, a longer period can lower the premium.
• Long-term care payouts can reduce cash value and death benefits. If you tap all the policy benefits for long-term care, you won’t be able to provide your loved ones with a death benefit.
• Lack of inflation protection. Not all policies cover inflation. Others allow you to add this feature at an added premium cost.
• Fewer tax benefits. Hybrid and traditional long-term care insurance payouts are tax-free. If you’re self-employed, you can deduct the cost of long-term care insurance premiums. With a hybrid policy, you can only deduct the portion that goes toward long-term care coverage.
• Ineligible for Medicaid programs. Traditional long-term care policies often are eligible with state Medicaid partnership programs. With a partnership policy, you don’t have to spend down all of your assets to qualify for Medicaid. Hybrid policies are not eligible for these partnership programs.

Cost is the biggest factor when buying a hybrid policy. That applies in several ways. Start with the cost of long-term care services, which starts at about $5,000 per month for in-home care and rises to an average of $8,000 to $9,000 per month for nursing home care. And all long-term care costs are rising across the board.

Another critical factor is the burden and stress long-term care puts on family members. Many who provide long-term care cite emotional, physical, time, personal health and lost earnings burdens.

Premium costs can also be a concern. If you shop for a policy and find the premium amount is prohibitive, consider lower amounts or different types of coverage. Work with an experienced life insurance agent and your financial advisor to determine what works best to protect your financial strength. Consider adding a rider as noted above, or add a separate long-term care policy later when your income may be higher.

Medicaid does cover some long-term care services (Medicare does not), but you need to spend most of your assets to qualify and receive care in an approved facility. Medicare does pay for short stays in skilled nursing facilities for rehabilitation or therapy services after a hospital stay but does not cover assistance for activities of daily living such as bathing, dressing, eating or using the toilet.

The amount of coverage a hybrid policy provides depends on the benefit period and benefit amount you choose. The average benefit period policyholders choose is three years that pays out $3,500 to $5,000 a month in benefits. The maximum benefit is then based on the monthly benefit amount and benefit period. For example, a long-term care policy with a $5,000 monthly benefit and a three-year benefit period would have a maximum benefit of $180,000 to pay for long-term care expenses.

As it is with all life insurance products, health and age are key factors used to determine eligibility and rates for private long-term care solutions, so it’s best to explore these options when you are still relatively young, in your 40s and 50s. However, some hybrid life insurance carriers will issue policies to people up to age 85.

It also can be easier to qualify for a hybrid policy than a stand-alone long-term care policy if you’re older because the underwriting is less stringent. Insurers are more relaxed about medical exams and conditions and still issue a policy.

Hybrid long-term care insurance can be a good way to protect you and your family in two important areas of your life. They provide stability and flexibility through level premium pricing and make sense for the widest possible set of circumstances when you’re focused on long-term care provision.

If you only need whole life insurance or a stand-alone long-term care policy, you’re better off shopping for those individually most of the time. But in all cases, you can best be proactive and discuss your needs with your financial professional and a life insurance agent or broker to provide maximum peace of mind and protect your financial strength for years to come.

Drew Gurley is a licensed life insurance expert with nearly 15 years of experience. During his career as both a licensed life insurance agent and industry executive, he has helped thousands of clients with their life insurance needs through his work at Redbird Advisors and Senior Market Advisors. When Drew isn’t working, he spends time with his family, supporting breast cancer and epilepsy awareness.

Sabrina Lopez is an editor with over six years of experience writing and editing digital content with a particular focus on home services, home products and personal finance. When she is not working on articles to help consumers make informed decisions, Sabrina enjoys creative writing and spending time with her family and their two parrots.