Critter Corner:  FAQs About Hybrid Insurance Policies

Since people are living longer, many insurance companies have found traditional long-term care insurance (LTCI) policies are not profitable enough.Several years ago, MetLife and Prudential stopped selling traditional LTCI policies, and they were joined recently by John Hancock. These were three of the biggest insurance companies selling LTCI. Pretty much every LTCI company has also increased the premiums for existing policies. Genworth, One of the other biggest LTCI providers, for now still offers new policies, but it was recently purchased by a Chinese company and has increased the premiums for existing and new policies. Other companies are still selling traditional LTCI policies, but premiums are generally guaranteed for one year only, and can be increased if the insurance company gets your state insurance commissioner’s approval.

With hybrid policies, consumers have policy options that provide both life insurance (or an annuity) and long-term care coverage.

Hybrid policies are typically considered to be asset-based long-term care coverage, because the purchaser pays a single up-front premium for a policy that provides both traditional life insurance coverage and a rider that provides LTC coverage.An advantage of the single-premium option is that generally it is easier to obtain coverage even if an individual has a pre-existing health problem.With the single-premium policy, the insurance company specifies a specific lump-sum that is available for LTC-related expenses, such as home health care, adult health care, assisted living expenses, or full-time nursing home care. After a specified surrender period, such as five years, the policyholder can typically elect to receive a full refund of premium if for some reason they decided they no longer need the insurance coverage.The lump-sum option is viable one for individuals who have some assets set aside, such as an IRA or a CD, that are not required for day-to-day living expenses.

One of the potential benefits of the hybrid policies is that your heirs will receive a death benefit if you do not use all of the LTC benefits. Another benefit of asset-based long-term-care coverage is that once you have paid your premium, your policy is fully paid for, and you will never have to pay an additional premium. Almost everyone who has purchased traditional LTCI policies have found that premiums have increased dramatically, and there is no reason to believe this trend will discontinue. Another advantage of a hybrid policy is that you may be able to purchase an “extension” or “benefit rider” which would allow you to receive monthly benefits after the base amount has been exhausted. This could double the time frame for receiving LTC benefits, or even provide you with lifetime benefits for a fraction of the cost of traditional long-term care insurance.Of course, hybrid asset-based long-term-care insurance is not right for everyone, and there are many other asset protection strategies to protect your assets from the potentially devastating costs of long-term care. Be sure to make an appointment with Mr. Farr to learn more.