According to the U.S. Department of Health and Human Services, 7 out of 10 people turning age 65 will need some type of long-term care service. Unfortunately, most people underestimate the likelihood of this need, and its potential cost. With an average length of care of three years, and an average annual cost between $50,000 (home health aide) to over $100,000 (nursing home), even the best financial plan can go awry.
Life insurers provide vital protections that help individuals care for themselves and those they care about most. Traditional stand-alone long-term care insurance (LTCI) policies have historically been the “go-to” product for people seeking certainty about long-term care. But fewer companies offer the product now. Their appeal has dimmed due to high costs, and a use-it-or-lose-it product design. Enter combination policies, also known as hybrids.
Hybrids have sparked new ways of thinking about LTCI. These policies combine life insurance and health insurance. If long-term care services are never needed, the policy will pay the death benefit to the beneficiary upon the death of the insured. However, if long-term care services are needed, the policy will pay all or a portion of the death benefit towards long-term care expenses.
Hybrids have become very popular. In 2018, more than eight times as many hybrid policies were sold to individuals than traditional long-term care policies.
Hybrid policies can be purchased with a lump-sum or with flexible premium payment periods such as 10 or 20 years. Premiums can be locked in to not increase.
Not all hybrid policies are created equally, so it’s important for consumers to do their homework. Like life insurance, the price for a hybrid is cheaper if bought when the consumer is young and healthy. Still, it can get expensive, depending on the size of the death benefit and the amount of long-term care coverage. Plus, there are varying tax implications based on the type of hybrid.
Hybrid policies can check all the boxes: long-term care benefits if needed, a death benefit if not. Plus, many offer a return of premium if the consumer changes their mind.
Jan Graeber is Senior Actuary at the American Council of Life Insurers (ACLI). She is responsible for industry advocacy on long-term care, risk classification, and supplemental benefits before federal and state policymakers, the National Association of Insurance Commissioners, and other groups that influence insurance policy, laws and regulations.
