Many who have long-term care insurance have experienced sticker shock recently as insurance companies that sell these traditional policies have significantly increased their premiums.
Even companies that had not previously raised their rates for existing policies have hiked their premiums. If you already have purchased a traditional long-term care policy, there is no guarantee that your premiums will not be raised. Insurance companies historically have been successful in requesting and receiving premium increases from the state insurance departments.
For example, Mass Mutual recently has requested a 77 percent increase in premiums for 54,000 policy holders.
LIMRA, an association that specializes in providing information about long-term care, indicates that between 2015 and 2019, 25 percent of people who are 65 years will need up to two years of long-term care. Fourteen percent will need five years, or more, of long-term care. Because nursing home costs in some areas of the U.S. cost more than $100,000 per year, having some type of long-term coverage is prudent.
A hybrid policy is one option for people who recognize the need for long-term care insurance but don’t want to take a chance that they will be forced to pay much higher premiums in the future. One of the features generally available with a hybrid policy, naturally at a cost, is a guarantee that rates will never be increased.
Some of the companies with strong financial ratings offering hybrid policies are Lincoln Financial, Nationwide, Safe Life, Pacific Life and New York Life.
One type of hybrid policy is a single premium policy that provides traditional life insurance with a rider that provides some LTC coverage. Other types of hybrid policies are whole life and universal life policies with an LTC rider that allows you to pay premiums monthly or quarterly. Many insurance companies ask that premiums for hybrid policies be paid within 10 years. Lincoln National allows policy-holders up to age 65 to pay the full cost.
Some companies, such as Prudential, John Hancock and Lincoln Financial, offer options with their whole life and universal policies to access death benefits to cover LTC-related expenses.
State Life offers a joint, second to die policy that allows either spouse to make withdrawals to cover LTC expenses. State Life also allows retirement assets to be used to fund life insurance premiums.
Other advantages of hybrids: Individuals with pre-existing conditions can obtain coverage more easily, and approval generally can be achieved with a 45-minute telephone call.
Policy-holders can recoup much of their premiums paid if they want to cancel the policy. There generally would be a surrender period, such as five years, before this option could be used.
Another attractive option is an extension or benefit rider, which allows you to receive additional monthly benefits after the base amount has been exhausted. This feature can double the time frame in which you can obtain benefits.
Your benefits are guaranteed. You have a contractually guaranteed death benefit and a guaranteed amount of long-term care coverage.
One of the disadvantages of the hybrid policy, in comparison to traditional long-term care policies, is that some benefits can be limited to 60 percent or 75 percent of actual costs.
Another disadvantage is that because premiums have to be paid in a shorter time frame, many people don’t have the immediate assets or enough recurring income to pay the required premiums to meet the shorter time frame.
Another disadvantage is that there is no tax deduction available for premiums paid.
An excellent source for information related to long-term care policies, other than your insurance agent, is the Association for Long-term Care Insurance (aaltci.org or 818-597-3227).
There is no question that a significant percentage of senior citizens will require some type of long-term care coverage.
The hybrid policies offer many advantages to people who want some protection with the knowledge that they can have some life insurance protection, options to recover some of their premiums paid, and a guarantee that their premiums won’t increase to the point that they have to cancel their LTC coverage.
Elliot Raphaelson welcomes questions and comments at email@example.com.