Hybrid vs. Traditional
Did you know that there is more than one option when it comes to long term care insurance?
Did you know that there is more than one option when it comes to long term care insurance? As the average age of our general population increases and the cost of Long Term Care services continue to spiral, more and more people are looking for ways to handle those costs.
Two major types of insurance, Traditional and Hybrid have emerged in the marketplace.
Both offer protection against the current and future cost of Long Term Care, but accomplish that in different ways. Depending on your retirement goals and situation…you may find one works better for you than the other.
Below is a brief explanation of both types. Our staff is fully trained in both traditional and hybrid policies and licensed with all major companies offering both types. We can help you navigate the complexities and decide which type of insurance is best for you.
Hybrid Long Term Care Insurance
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Like the name implies, Hybrid Long Term Care insurance is a marriage between Long Term Care Insurance and Life Insurance or an Annuity.
With a hybrid plan, you purchase a life insurance policy or annuity with a long term care benefit. The long term care benefit portion, which is typically 3 or more times the face value of the life insurance or the annuity, creates a pool of funds that can be used to pay for long term care if it is ever needed. Your LTC benefits are guaranteed and your cost never goes up. If ever wish to cancel the policy, you are guaranteed return of monies paid in. If you pass away without ever needing long term care, your heirs receive the death benefit.
Often these plans are funded with a single, up-front premium payment and usually start at about $50,000 face value. Some companies allow monthly or annual payments for 5 to 15 years, until the policy is completely funded. The advantage here is that either your policy is completely funded at the start or you are on a finite payment schedule.
Sometimes people reposition savings, a fund or asset that they had been saving “for the future” or to pass on to heirs. Often this allows for a “best of both worlds” scenario because it provides for long term care cost coverage if necessary but preserves the asset to pass on if not needed or not fully used for long term care. But because of this single or short-term payment model, some people may perceive hybrids as being more expensive than traditional long term care insurance, which is typically paid monthly, quarterly or annually for life.
Like traditional long term care policies, hybrid policies provide you the ability to elect your long term care insurance benefits at the outset, monthly benefit, benefit period, and inflation protection.
The premiums you pay for hybrid policies are not usually income tax-deductible, because hybrid policies are not considered tax-qualified policies like some traditional LTC policies. However, in most states the death benefit proceeds from life insurance pass to the beneficiary tax free and without being subject to probate, so that is the trade-off.
Traditional Long Term Care Insurance
Traditional long term care insurance is structured like car insurance; you pay a relatively small monthly, quarterly or annual premium, and if you need long-term care due to age or illness, the policy pays out a daily or monthly benefit.
However, like car insurance, no benefit is paid if long term care is not needed and premiums paid in are not refunded if the policy is canceled or not used.
A traditional Long Term Care policy, can be custom-tailored to suit your needs, you elect your benefits at the start:
Benefit Period (2 years, 3 years, 4 years, 5 years, 6 years etc.(Individual or Shared benefits for couples)
Waiting Period (30 Days - 180 days)
Your premium is guaranteed renewable. Premiums are typically paid on a monthly, quarterly, semi-annual or annual basis. As long as you pay your premium, you will have coverage in-force.
Many states have “Partnership” programs and encourage people to purchase qualified Long Term Care insurance policies by making premiums paid tax deductible. We offer tax qualified policies from all major companies who are currently offering them.
Insurance companies reserve the right to revise their rates with State Insurance Commission approval. While review periods are not set, history shows that major companies have increased rates approximately every 2-5 years and that increases could be as much as 20% per increase.
With both Hybrid and Traditional long term care insurance, rates are based on a combination of age and health status and are subject to medical underwriting, so the younger and healthier you are when you apply the better. Underwriting standards differ from company to company and traditional long term care insurance may be evaluated differently than hybrid insurance. If you have a health concern or have been turned down in the past, talk to us! We can help you find the best option for coverage.
Give us a call and let’s discuss which option is best for you.