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.
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 LTC 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 LTC 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.
Recently, a third option has emerged: the hybrid LTC 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 LTC, 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 LTC 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 LTC policies are also often purchasable with a lump sum of cash — something less available for traditional LTC 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 LTC policy payouts will reduce the cash value of a life insurance policy or the benefits paid to the beneficiary. In addition, with both traditional and hybrid LTC policies, you’re putting your future in the hands of an insurer — are you confident they’ll still be in business when you need them? Check their rating with AM Best, a credit-rating agency that evaluates insurers, before signing on the dotted line.