Before you make the jump to a hybrid long-term care policy, get to know the true cost of foregoing traditional long-term care coverage. While there’s a time and a place for hybrid products, here are the reasons why many choose traditional long-term care insurance instead.
You Don’t Get Access to LTC Partnership Programs
One valuable feature of a traditional LTC policy is the partnership program which works in conjunction with your state’s Medicaid program. Partnership LTC policies allow your assets to be ignored up to the total LTC insurance benefit. This means if you exhaust the funds in your LTC policy, you don’t need to spend down your assets to the typical $2,000 limit to qualify for Medicaid. You can retain your assets up to your LTC policy benefit amount.
Not only are you covered for long-term care with a traditional policy, you gain additional provisions to keep your hard-earned money should you need more financial assistance.
Premiums for Traditional Policies May be Tax Deductible
Any premiums you pay for a traditional LTC policy may be income tax deductible, in whole or in part. This savings can reduce the cost of your insurance. Premiums for hybrid policies typically don’t offer the same tax-deductible savings.
LTC Carrier Actuaries Have Over 25 Years of Experience
While many go the hybrid route due to the potential for LTC insurance rate increases, carriers with traditional LTC products have actuaries with over 25 years of experience. They’ve figured out how to properly price traditional LTC insurance and are much closer to getting it right.
Regardless, premiums would need to increase substantially over time before the economic advantages of hybrids reach those of traditional LTC coverage.
Hybrid Policy Rates Can Increase Too
Wait a second, how can hybrid rates increase when it’s a single premium? While the appeal of hybrids is the one-time premium, there’s still a catch.
With hybrids, the insurance company controls the cash value and is under no obligation to pay the going rate of return when interest rates increase. For example, even if the insurance company can’t raise premiums by $3,000 per year, they can simply underpay you on the interest rate by $3,000 per year.
“The insurance company controls the cash value and is under no obligation to pay the going rate of return when interest rates increase.”
Carriers Don’t Offer Hybrid Products to Just Anyone
If declined for traditional LTC, many think they can just get a hybrid policy instead. Unfortunately, this isn’t always true. In some cases, hybrids offer simplified underwriting to allow people to get LTC coverage when they’d otherwise be declined for traditional coverage, but not all.
Any Withdrawals Will Surrender Your LTC Coverage
The cash value of a hybrid LTC policy is typically liquid. But if you withdraw the funds to reinvest in better rates, you surrender the policy and lose your LTC coverage. Some hybrids offer no rate of return which is equivalent to a client selling a cash option on interest rates to the insurance company. The more interest rates rise, the more the company wins.
Before you go the hybrid LTC policy route, do your research and make sure it’s the best option for you. At LTC Consumer, we help individuals and families develop a custom long-term care plan to fit their needs. Contact us today to learn more.