What if, one day, you can no longer dress yourself or tie your shoes? Someone turning 65 today has an almost 70% chance of needing some form of long-term care (LTC) sometime in the future. And while many receive in-home care from relatives, that’s not feasible for others. They may not have someone who’s able to help, or they may need more care than can be provided at home.
Long Term Care Insurance: Costs and Limitations
Finding long-term care is hard enough; paying for it can be an even bigger hurdle. Some elect to pay out of their savings. Others rely on a traditional long term care insurance policy; they pay a premium, and the policy pays a defined amount toward eligible in-home care, adult daycare, or Alzheimer’s support if they need it.
One downside of traditional, stand-alone long term care insurance is that, if the policy does not provide a fixed premium, the cost can escalate, sometimes exorbitantly, over time. And that time could be when you’re living on a fixed income and need the benefits.
What Is Hybrid Long Term Care Insurance?
Recently, a third option has emerged: the hybrid long term care insurance policy, which combines life insurance or an annuity with long-term care. You can pay a lump sum upfront or a fixed premium over time, and you can receive one or the other benefit in return, depending on the policy you purchase. If you never need long-term care, the policy can pay income like a traditional annuity or a death benefit like a traditional life insurance policy. If you do need LTC, the policy pays toward those costs in an amount you choose when you buy it. Depending on the policy, money provided for long-term care would reduce the annuity or death benefits that you’d otherwise receive.
Return of premium riders on hybrid policies can also return most, if not all, of the premium cost in the death benefit or annuity. At the same time, the total available for LTC might be several times higher than the premium amount, offering additional value.
Hybrid long term care insurance policies are also often purchasable with a lump sum of cash — something less available for traditional long term care insurance — and medical underwriting requirements may be less stringent.
But there are downsides to consider. Lump sum premiums that can run upwards of $50,000 to $100,000 are inaccessible for many individuals, and long term care insurance policy payouts will reduce the cash value of a life insurance policy or the benefits paid to the beneficiary.
Protection for Your Future
Baby boomers and successive generations will enjoy unprecedented longevity compared to previous generations. The upside is obvious. But there’s a downside — the number of chronic health conditions that can require costly LTC.
