Hybrid life insurance policies offering leveraged long term care payouts are in demand as they provide both living and death benefits to the owner/insured.
Typically, these policies are used more for long term care benefits, but they do provide tax-free payouts at death.
Also referred to as asset based long term care, hybrid life policies offer an alternative to traditional long term care insurance. They function like hybrid annuity accounts except they are built off of whole and universal life insurance platforms which can offer additional tax advantages.
Like traditional LTCi plans, hybrid policies offer leveraged payouts, inflation protection, coverage in any setting (like your own home, assisted living or a nursing home) and waiting period options. These plans instantly create a pool of money that will pay benefits for a minimum number of years. Some policies even offer lifetime benefits.
Owners of hybrid life insurance policies will know their daily (or monthly) long term care benefit amounts at onset and as the policy grows. (If less than the daily or monthly benefit amounts are used, policies will last longer than the designated number of years established at purchase.)
Many of our clients prefer hybrid life plans (and hybrid annuities) as these policies allow for better control of assets and predictable premiums.
Additionally, these policies can eliminate the usual worries associated with traditional long term care – like unstable premiums and/or paying for expensive coverage that may never be used.
There are a few, but growing number of insurance companies that are active in this market: including Genworth, Lincoln Financial Group and One America State Life.
Some policies will allow for joint ownership (ideal for couples) while others will only allow for one owner. Joint ownership can help spouses leverage dollars even further assuming only one spouse needs the majority of the benefits. This can be more advantageous than having a healthy spouse’s policy sitting idle and unused.
Hybrid life insurance policies are usually funded with a one-time single premium, but some do allow for payments over a set number of years – say $10,000 for ten years. Additionally, there are contracts that offer a “return or premium” clause if the insured changes their mind after purchase.
A single premium (or defined payment plan) will instantly purchase a death benefit as well as a qualified long term care benefit package. Death benefit amounts can sometimes vary year to year depending on the type of policy (universal or whole life) that is purchased.
Should the owner(s) pass away without using the policy LTC benefits, the death benefit becomes available on a tax-free basis to the named beneficiaries. In the case where only a portion of the policy has been used for LTC before passing, then the remaining amount would pay out to the policy’s beneficiaries. And some plans will offer a small residual death benefit even if the entire policy has been liquidated for long term care expenses.
All long term care plans require some amount of medical underwriting – whether they are hybrid or traditional. Hybrid plans are popular as they usually require less underwriting than their traditional counterparts. Most hybrid life insurance plans only require an application questionnaire and a phone interview. In some cases medical records will be requested, but not often.
If you have been turned down (or rated up) for a traditional LTC insurance plan, then you might be a good candidate for a hybrid long term care policy. Between the two types of hybrid platforms, annuities typically require the least amount of underwriting as there is less immediate capital risk to the insurance company.
All true hybrid life insurance plans offer inflation protection. (If the policy you’re considering does not, it may simply be a life policy with a critical illness or accelerated death benefit rider.) If chosen, inflation protection will be built in at onset and require additional premium dollars. Inflation protection riders can be purchased with a single premium, over a defined number of years, or over the life of the policy.
Inflation riders will vary between carriers – some will offer compounding benefits while others will provide simple yearly increases. The most common riders offer 3% or 5% compounding yearly benefits. Each year, you will receive a statement detailing your policy values and growth should an inflation rider be included.
It is important to understand that many traditional life insurance policies (including term, whole and universal) simply offer what’s called an accelerated death benefit or critical illness rider. In the event the insured meets certain criteria, the policy will payout a portion of the death benefit to the insured while living.
These riders are not what our agency considers to be true hybrid life insurance as there are restrictions on how and when they pay. In other words, these types of life insurance plans are not coupled with tax-qualified long term care insurance and can be more restrictive.
We also offer life insurance policies with living benefits, but in our opinion these types are more life insurance than long term care. It depends on your long term planning goals as to which one might be right for you. We can help you to understand both.
Our independent insurance agency focuses on traditional and hybrid life long term care insurance plans. We will help you compare policy benefits, riders and overall cost in order to find a hybrid LTC plan that best suit your needs. Contact us today to learn more.
