Hybrid Long Term Care Insurance Policies with Life Benefits

Updated September 12, 2023.

Written by Drew Nichols and Darrick Wilkins

Higher interest rates in financial markets have dramatically improved Hybrid Long Term Care Insurance policies in 2023.

A healthy 60-year-old can now get tax-free benefits of $189,000+ in Life Insurance and $567,000+ Long-Term Care benefit for a single $100k drop-in premium payment. A new "Couples' Policy" has been introduced that covers both spouses and pays cash benefit options, providing freedom to choose LTC caregivers, even from family members. Read on to learn more about both!

Who Should Buy Hybrid Life + LTC?

You may be wondering who should and who should not buy a Hybrid Long-Term Care plan. These plans are ideal for those with a net worth between $500,000 and $5 million. Below $500k, traditional LTC plans are more suitable, and above several million dollars, self-funding your future care costs can be less risky.

Why these plans make financial sense: A healthy 60-year-old female can safely see a tax-free 89% return to her beneficiary through life insurance benefit (and 102% for a male of the same age) while also getting a 500% tax-free leverage on their money for Long-Term Care services.

Said another way, setting aside $100k of your retirement into a hybrid long term care plan can create a guaranteed return of between $189k - $202k tax-free to your loved ones through life insurance... but there's more to it than that.

At the same time the $100k premium can create a long-term care account of up to $607,000 for Long-Term Care services, paid in cash, tax-free. There is simply no other safe way to get this kind of leverage.

What could prevent you from getting coverage?

To get long-term care insurance, you must be healthy enough to qualify based on the insurer's underwriting process. This approval process can be tough.

Certain ongoing health conditions could mean you don't qualify for coverage. For example, if you have a history of major conditions like cancer, heart disease, stroke, diabetes, or arthritis, you may not be eligible. Other red flags are if you use a cane or walker, have had recent falls, or need help with activities like bathing or dressing. Even smaller issues like taking multiple prescriptions or being overweight could also impact your approval.

The key is that insurers want to provide these policies only to those least likely to need care soon. They will review your entire health background and medical records. It's a good idea to have a private conversation with an insurance agent. They can give you personalized feedback on whether your specific health history would likely qualify for coverage. Don't assume you won't qualify without exploring your options first.

Benefits Paid in Cash Give You More Options

Many of the best long-term care insurance plans pay your benefits in cash. These cash payments are called "indemnity benefits".

Cash benefits give you more flexibility to spend the money however you want. You can use the cash to pay for nursing home care, assisted living, or home healthcare. You can even use it to pay a family member for care.

With cash benefits, you don't have to submit receipts or paperwork to prove how you spent the money. The insurance company sends you a monthly check up to the maximum amount you qualify for. It's tax-free income you can spend as needed.

Keep in mind - if you use up some or all of your long-term care benefits, it reduces the death benefit your beneficiary would get. For example, if you use $200,000 in long-term care benefits, your beneficiary may only get what is called a "residual death benefit" with some companies or a "minimum death benefit" with others.

To get long-term care insurance, you typically pay a larger upfront premium, like $125,000 per person. But some policies allow you to spread out payments over 5 or 10 years too.

The benefit of paying a premium is that it provides a pool of money you can tap into tax-free if long-term care is ever needed. This gives you important options in the future.

• Takeaway #1: Re-allocate a small portion of your portfolio to protect a large portion of it.

The latest statistics from LongTermCare.gov indicate that 70% of those who live to age 65 will need long-term care.

Curious about what your cost would be? Start your quote here (takes 2 minutes).

Do I Need to Be in Good Health to Qualify?

To get a hybrid long-term care insurance policy, you typically need to be in good overall health. The insurance company will review your full medical history as part of the application process.

Certain chronic health conditions can make it difficult or impossible to qualify for coverage. For example, a history of cancer, stroke, heart attack, or joint issues like arthritis may prevent approval.

Insurers want to provide these policies only to those least likely to need care soon. They are especially strict in evaluating health after the COVID-19 pandemic.

If you are generally healthy with only minor conditions like high blood pressure or high cholesterol that are controlled by medication, you will likely qualify without issue.

A quick 5-minute phone call with an agent can give you an initial assessment of whether your health profile would meet the approval guidelines.

If you don't qualify for the hybrid policies due to health, there are alternatives like annuities that can still provide some bonuses or benefits for long-term care costs. An insurance specialist can help find the best options for your unique situation.

The key is not to assume you won't qualify - have an expert review your full health profile first. Many in good health can still obtain coverage.

• Takeaway #2: You must be healthy to buy hybrid policies, but annuities can still be an option. A specialist can help you find the right plan and company.

How Do I Compare Hybrid LTC Companies?

When you are considering paying a one-time premium of something like $100 - $175k, or $7-$15k/year in premiums to an insurance company, you only want an A+ rated or better company. There's just little advantage in taking the risk of going with a lesser company.

A few of the major players in the Hybrid Long-Term Care Insurance companies:

• Takeaway #3: Compare the best Hybrid LTC companies with our free service.

What About Pay-As-You-Go Policies?

Why can't I just pay every year for this insurance like I do for my other policies (ex: home, auto, health)?

LTC policies have "traditionally" been paid year by year, for a few thousand dollars a year. As time went on, even the best companies began to change rates on policies years after the sale, and those predictable annual payments people were making became less predictable. This is obviously troublesome when on a fixed income.

If you're investigating Long Term Care Insurance, you'll want to also compare a Hybrid LTC policy where you purchase a policy and have it completely paid off in a 1, 5 or 10-year payments.

Best of all, premiums are almost always guaranteed and with many plans so are your benefits in the future.

• Takeaway #4: Hybrid LTC plans should have a guaranteed premium cost, and you will not pay more in the future. (Confirm this before purchasing!)

How Much Does It Cost?

We analyzed the top three selling Hybrid Long-Term Care policies in 2023 and came up with the following chart:

Traditional Long Term Care Insurance rates can be increased, so it's wise to look into hybrid long term care insurance because this product has a guaranteed premium.

Hybrid Long-Term Care Insurance policies also has a life insurance policy at least equal to premiums paid in built into the plan that is paid out to the family tax free at death if care is never needed.

Who Sells Hybrid Long Term Care Insurance?

Insurers have embraced the idea of offering Hybrid Long Term Care coverage with a 1,5 or 10 year premium payment choices. Over a dozen cutting edge hybrid-LTC products have hit the market in the last five years.

Here at CompareLongTermCare.org we provide a free side-by-side comparison of all the major companies in the market.

Companies include:

• Brighthouse (formely MetLife)
• John Hancock
• Nationwide
• Minnesota Life / Securian is their new name.
• Lincoln Financial

The above list is not comprehensive, but these are the primary companies that we see having competitive hybrid offerings, and our free service will compare all of the above side-by-side.

• Takeaway #5: Some of the major "Blue Chip" companies offer very good Hybrid Long-Term Care Insurance policy options.

Cash Indemnity Benefits Are More Consumer Friendly.

Cash Benefits are another major advantage of hybrid policies offered by both Nationwide and Securian's Minnesota Life. Cash is king, as they say, and it's no different in the LTC world. Cash benefits mean you can spend your benefits dollars as you see fit without having to get care providers (at home or in facility) approved.

The flexibility and lack of paperwork can be a big advantage if you want to save yourself time in the future. If you have kids, they will thank you for buying a cash indemnity policy. Some companies literally don't even have a claim form; once eligibility is confirmed they just mail the money each month.

The trend has been towards cash benefits as more and more consumers see the pitfalls of having to submit receipts each month. Some of the cash indemnity hybrid long term care plans literally don't require a claims form. Ask your advisor about this, as it is important to think about the "flip side" of the insurance coin.

• Takeaway #6: If you can, get cash indemnity benefits payments instead of reimbursement policies. In 2022, the cash policies are actually less expensive than many reimbursement policies.

Example Quote for a Hybrid Long Term Care Insurance Policy

Let's take a healthy 62-year-old male and consider "traditional" Long Term Care Insurance quotes vs. a Hybrid Life Insurance / Long Term Care policy from one of the A+ rated insurers that offers these types of plans.

This 62-year-old can make a single premium payment of $100,000 to purchase a hybrid policy with benefits of $398,638 in LTC benefits and $135,591 Life Insurance benefit paid to the family if care is never needed.

Here is a comparison of a hypothetical "3% Return" on self insured money in a bond fund, versus the Total LTC Benefit you'd have (tax-free as well) when purchasing a hybrid policy on an S&P indexed policy. With the indexed option, your benefits can never drop but can capture market upside in good years.

We also graphed the Death Benefit - the guaranteed payment your beneficiary will get tax-free if no LTC is needed. You can see over time it remains the same while self insured and LTC benefits grow.

This table continues, but the trend is clear. Long Term Care benefits grow and significantly out pace a self-insured 3% return. When accounting for taxes (which benefits are NOT taxed) the benfits of using one of these vehicles is clear.

Keep in mind the reason you purchase these policies is to protect against Long Term Care. The Life Insurance benefit is almost like a bonus, or hedge in case you never used your LTC coverage.

Can I Pay For a Hybrid Long Term Care Policy From My IRA?

YES. It may be possible to pay for a hybrid policy from your retirement account (IRA) via a SPIA which stand for Single Premium Immediate Annuity. Life insurance policies cannot take IRA 1035 exchanges, but annuities can. You transfer the IRA money to the annuity and the annuity then pays the premium.

You'll still pay taxes, but they are deferred and withdrawn over 10 years with this plan design. If you are thinking of paying with IRA funds let us know up front so we can suggest specific policies to accept that transfer. Most companies do not accept Qualified funds, but a select few do. One example is OneAmerica AssetCare.

As with any complex tax issue, consult with a CPA before making any decisions about moving money into or out of one of the hybrid LTC plans. The IRS has a few resources on the topic here and here.

Comparing Life Insurance with Long Term Care Rider to Regular Long Term Care

Every situation is different, and premiums are based on your age, state, health, and martial status. Consult with a qualified adviser (you can do it online, below) who can go out and search the market to compare your options when it comes to which Long Term Care policy to consider.

See the chart below to view how the power of compound interest will grow your benefits over time.

Protection From Rate Increases

Most Hybrid Long Term Care Insurance plans' premiums are guaranteed to never increase. This gives you the ability to plan ahead knowing you Long Term Care plan is locked in so you can enjoy retirement. As with any financial decision, having a trusted adviser is the most critical element.

Avoid taking advice solely from your financial adviser, especially if they sell these products. They often have options tied to one company only, leading to biased advice.

We work with every company and will shop the entire market with one source as opposed to having to go to multiple people all telling you how the single product they sell is the best.

Here at LTC Tree, we work with every company and have no preference to any one company. Objectivity is the key and objectivity is in our company's DNA.