Traditional Versus Hybrid Life and Long Term Care Insurance – Long Term Care University
Long Term Care University – Question of the Month – 03/15/25
By Aaron Skloff, AIF, CFA, MBA
Q: What are the advantages of a Hybrid Life and Long Term Care insurance policy versus a Traditional Long Term Care insurance policy, and vice versa?
The Problem – Comparing Apples and Oranges
What happens to all those premiums you pay for a Long Term Care (LTC) Insurance policy if you pass away and never use the policy? The same thing that happens to all those premiums you pay for a homeowners or major medical health insurance policy if you pass away and never use the policy – the insurance company keeps them, and you are happy you never had a claim. But, simply having peace of mind over the life of your policy may not be good enough for some consumers. You may feel like you are getting a better value if you definitely get something back from the insurance company. Fortunately, insurance companies give you two types of policies to choose between.
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With a Traditional LTC Insurance policy, you pay each year until you receive care; at which point your premiums are waived. Just like a homeowners insurance policy, you may never have a claim and never receive anything back from the insurance company. With a Hybrid Life and LTC Insurance policy, you make a one-time payment or over a limited number of years. Hybrid policies provide long term care benefits if you need long term care, a death benefit if you die without needing LTC, or both if you need a limited amount of LTC. Due to their unique advantages, comparing the two types of policies is like comparing apples and oranges – as seen below.
The Solution – Understanding the Advantages of a Traditional Versus a Hybrid Life and Long Term Care Insurance Policy
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Numbers Speak Louder than Words. Let’s look at a husband and wife of average health that are each 55 years of age. They are comparing Hybrid and Traditional policies. Their goal is to spend a total of $200,000 either upfront or over time. They can purchase 6 years of per person or Lifetime LTC per person on a Hybrid policy or 5 years of LTC per person on a Traditional policy.
Hybrid Policy. Following a combined one-time premium payment of $200,000 they will have a combined $2,438,899 tax-free available for LTC costs in 25 years at the age of 80. They also gain a combined $278,484 tax-free death benefit. For each $1 of LTC benefits the policy pays the death benefit is reduced by $1. Or, following a combined one-time premium payment of $200,000 they will have a combined Lifetime, Unlimited tax-free amount available for LTC costs in 25 years. They also gain a $298,293 tax-free death benefit when the second person dies. For each $1 of LTC benefits the policy pays the death benefit is reduced by $1. See the chart below.
Traditional Policy. Following a combined annual premium payment of $8,000, they will have a combined $1,360,956 tax-free available for LTC costs in 25 years at the age of 80. If their premiums never increase, they will have paid a combined $200,000 over the course of 25 years. There is no death benefit. See the chart below.
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Action Step – Compare and Contrast Before Purchasing Traditional or Hybrid Life and Long Term Care Insurance
Since Traditional and Hybrid Life and LTC Insurance policies pay for your LTC and protect your assets, purchase a policy that provides you the greatest advantages. Since premiums vary greatly based on age, health and marital status, request individualized quotes.
Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA) charter holder, Master of Business Administration (MBA), is the Chief Executive Officer of Skloff Financial Group, a Registered Investment Advisory firm. The firm specializes in financial planning and investment management services for high net worth individuals and benefits for small to middle sized companies. He can be contacted at www.skloff.com or 908-464-3060.
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Frequently Asked Questions
Q: What is the difference between traditional long-term care insurance and hybrid life and long-term care insurance?
Traditional long-term care (LTC) insurance is designed solely to pay for qualified long-term care expenses, such as home health care, assisted living, or nursing home care. If you never need care, you generally receive no financial benefit, and premiums may increase over time. Hybrid life and LTC insurance combines permanent life insurance with long-term care benefits. If you need long-term care, you can access the policy’s LTC benefits. If you never require care, your beneficiaries receive a death benefit. Many hybrid policies also feature guaranteed premiums and may offer a return-of-premium option if the policy is surrendered, making them attractive for individuals concerned about “using it or losing it.”
Q: Why have hybrid long-term care insurance policies become so popular?
Hybrid policies have gained popularity because they address several shortcomings of traditional LTC insurance. Many consumers appreciate knowing their premiums are guaranteed not to increase, unlike many traditional policies that have experienced rate hikes over the years. In addition, hybrid policies provide multiple potential outcomes: benefits for long-term care if needed, a death benefit for heirs if care is never needed, or both if only part of the LTC benefit is used. This flexibility allows policyholders to protect their retirement assets while ensuring that the money contributed to the policy will likely benefit either themselves or their loved ones.
Q: Who is a good candidate for traditional long-term care insurance versus hybrid coverage?
Traditional LTC insurance may be appropriate for individuals seeking the largest possible long-term care benefit for the lowest initial premium and who are comfortable with the possibility of future premium increases. Hybrid policies are often better suited for people who value premium guarantees, want life insurance protection, or dislike the possibility of paying premiums without ever receiving benefits. The right choice depends on age, health, financial resources, estate planning goals, and whether preserving assets for heirs is an important objective. Working with an experienced advisor can help determine which approach aligns best with your overall financial plan.
Q: Does Medicare or regular health insurance pay for long-term care?
Many people mistakenly believe Medicare or traditional health insurance covers long-term custodial care, but this is generally not the case. Medicare primarily covers short-term skilled nursing or rehabilitation following a qualifying hospital stay and does not pay for ongoing assistance with activities of daily living such as bathing, dressing, or eating. As a result, individuals often rely on personal savings, long-term care insurance, hybrid policies, or Medicaid after spending down their assets. Planning ahead can help avoid significant financial and emotional burdens on family members.
Q: When is the best time to purchase long-term care insurance?
The best time to purchase either traditional or hybrid long-term care insurance is generally between ages 50 and 60, while you are still in relatively good health. Applying earlier often results in lower premiums and a greater likelihood of qualifying medically. Waiting until your late 60s or 70s can significantly increase costs and raises the risk of being declined because of health conditions. Purchasing coverage before retirement also allows more time to incorporate premiums into your long-term financial planning.
Q: What factors should I compare before choosing a long-term care insurance policy?
When evaluating traditional or hybrid LTC policies, compare much more than just the premium. Important considerations include the amount of long-term care benefits available, benefit duration, elimination period, inflation protection, reimbursement versus cash indemnity benefits, flexibility of care settings, financial strength of the insurance company, premium guarantees, death benefit provisions, and any return-of-premium options. Since policies can differ substantially between insurers, obtaining multiple illustrations and having them reviewed by an independent long-term care specialist can help ensure you select coverage that best fits your needs and retirement objectives.
