Ask The Expert: What are the advantages of the new hybrid life/LTC products?

posted by: Chris Lynch MBA, CLTC, LTCP

Traditional long term care insurance policies provide a certain amount of selected coverage for policyholders. Policies are designed to cover care expenses for a few months, or much longer, even providing benefits for the insured's lifetime. For example, consumers could purchase coverage that would provide $100 a day in benefits for a period of three years. When calculated, the $100 daily benefit multiplied by 365 days in a year for 3 years would create a $109,500 "pool of money" available for care. This pool of money pays for care in a nursing home, assisted living facility, adult day care, or in the personal residence of the policyholder once certain criteria had been met.

However, if the policy is never used, the owner could lose the investment of his or her premium payments. Thus, some people opt not to purchase these policies, deciding instead to rely on their families or current savings in the event that care became necessary.  They self insure and put their own assets at risk instead of the insurance companies.

With the cost of health care rising rapidly, and a single day in a nursing home costing $200 or more in major cities, self insuring is a risky proposition. Relying on family is an alternative, but not necessarily a viable one. Unfortunately, most families do not have the time, resources or ability to provide around the clock care to a loved one.

In response to customer demands, insurance companies have designed what can be best described as hybrid or linked policies. These policies combine the benefits of a life insurance agreement with a traditional long term care contract. With hybrid policies, the consumer has the guarantee of long term care benefits or, if no care is needed, the promise of insurance benefits to themselves and their beneficiaries.

Hybrid policies work in several ways. One policy links long term care to a life insurance policy. With this plan, the insured deposits a set premium into a policy. Depending on the age, gender and health of the client- an immediate pool of money is created for long term care. At the same time, an immediate death benefit is created in life insurance. Take, for example, a healthy 65 year old non-smoking woman with $275,000 in liquid assets. If she deposits $75,000 into this account, approximately $140,000 in long term care benefits would be created immediately. There would also be a death benefit to her beneficiaries of approximately $140,000 created from the life insurance component of this account. At an additional cost, she can select a benefit rider which would provide additional long term care benefits if her costs exceeded $140,000.  In this example, she receives guarantees on her investment as well as protection from the high costs associated with a nursing home stay. In addition, she would still have $200,000 in assets at her disposal.  Plus, she can access the cash value of $75,000 in her insurance policy through loans, should the need arise.

This basic scenario is only an example of how hybrid policies work. The coverage will be different from person to person depending on age, health, gender, premiums and benefits requested. In order to get an accurate proposal, an illustration would be required from the insurance company. These innovative products can meet consumer demands and provide more guarantees by combining traditional long term care insurance with the advantages of life insurance.  Thus, consumers who utilize hybrid policies can avoid self-insuring against catastrophic long term care related expenses and have the peace of mind associated with a comprehensive plan.

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Posted by:Camille

10/14/2012 4:01:13 PM

Obviously you are looking for a free lunch, which you are not going to get. Suddenly with your aunt not doing well, you feel that there MUST be a blind inucarnse company out there flush with cash ready to cover this person, so when she passes away, you will become wealthy.Very few if any companies will do this, because she is in a nursing home, because she is quite ill, and because you have no vested interest in her.Any company willing to insure her will only do so, with a forfeiture of a few year period of non-payment is she dies, and also of only a small claim amount. In other words, someone will have to pay a bunch of money for a period of time, if she lives, hoping to collect it back when she dies. Nothing is for nothing. Was this answer helpful?

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