You may have heard of life insurance, but what about long-term care insurance? These days, with Americans living longer than ever before, long-term care insurance covers some of the expensive bills that come from managing chronic conditions. In fact, studies estimate that 70% of seniors who turn 65 today will require long-term care at some point. Hybrid long-term care insurance can help make this possible.
Long-term care insurance may be a good decision for you and your family. Let’s go over this type of insurance, as well as the pros and cons of getting a hybrid long-term care insurance policy.
About long-term care insurance
What is long-term care insurance?
Long-term care insurance covers the costs associated with chronic illnesses. The idea is that this insurance covers care not necessarily covered by health insurance, including custodial care (bathing, dressing, toileting, eating, etc.) and mobility assistance (going up stairs, getting in and out of bed, etc.).
It may also cover senior living options for getting this type of care, such as in-home care, assisted living facilities, dementia care, nursing homes and other care programs such as adult day care, respite care and hospice care. These types of facilities are often quite expensive, so long-term care insurance can help defray the costs.
Why would I want long-term care insurance if I have Medicare or a private health insurance policy?
Health insurance usually only covers medically necessary care. If you enter a nursing home, for example, Medicare and private insurance will only cover the nursing-specific care. Everything else, including custodial care, meals and other services, will be your responsibility. Even if you have Medicare coverage, you won’t be covered for services that aren’t deemed “medically necessary.”
As you can see, there’s a big gap between what’s covered by health insurance. Long-term care insurance works to fill it by offering coverage for long-term costs of care services related to chronic illnesses.
Why would I want long-term care insurance if I have Medicaid?
Medicaid does in fact cover long-term care. However, because Medicaid is intended for low-income and medically-needy patients, not all seniors will qualify for it.
At the same time, even if you have Medicaid, you’ll be limited in your options since care can only be provided at Medicaid-approved facilities.
What conditions does long-term care insurance cover?
Long-term care insurance is intended for patients with chronic illnesses that require pricey long-term care. While every policy has its definition of what chronic illnesses qualify, some common ones include:
- Alzheimer’s disease
- Crohn’s disease
- Cystic fibrosis
- Heart disease
- Multiple sclerosis
Of course, this isn’t an exhaustive list. You should check your long-term care insurance policy for a complete list of chronic conditions that they cover.
What are the benefits of long-term care insurance?
Long-term care insurance can often keep patients from financial struggles later in life. It gives seniors peace of mind that whatever happens, they’ll have coverage for treatment and living options for chronic conditions.
Besides the obvious financial benefit, having long-term care insurance can give you a wider range of care options to choose from. You can decide where and how you want to get care, which can make for a better quality of life as a senior.
You’ll also have an easier time getting the range of services you need. Instead of just medical care, you’ll get custodial care, as well as other services such as meals, chores or respite care. (This will depend on the long-term care policy you choose.)
What are the drawbacks of long-term care insurance?
So far we’ve been talking about long-term care insurance in general. One of the drawbacks of buying stand-alone long-term care insurance is that plans are often “use it or lose it.” That means you may invest in long-term care insurance and, if you don’t end up using it, you’ll lose all that money.
Most Americans don’t buy stand-alone long-term care insurance for this reason. It’s a huge investment that you may never use. This leaves many seniors wondering whether long-term care insurance is worth the risk.
Luckily, there’s a new type of long-term care insurance policy available. It’s called hybrid long-term care insurance and it resolves the problem of “use it or lose it” by combining life insurance with long-term care insurance. Let’s go over how hybrid long-term care insurance works and the pros and cons of this type of policy.
Getting hybrid long-term care insurance
Hybrid long-term care insurance solves the “use it or lose it” problem of stand-alone insurance. But how exactly does hybrid long-term care insurance work?
This type of insurance policy combines two types of coverage: life insurance and long-term care insurance. Basically, you invest in one policy that then can be used for both. For example, if you have hybrid long-term care insurance and get a chronic illness, you can use your policy to cover long-term care expenses.
However, if you don’t get a chronic illness and don’t need long-term care, your policy investment remains as life insurance that’s paid out to your heirs upon the event of your death.
As you can see, hybrid long-term care insurance can be an excellent way to ensure an end-of-life investment that covers care if you need it, but otherwise remains as life insurance for your surviving spouse or children.
Why is a hybrid policy better than a stand-alone long-term care policy?
A hybrid policy gives you the flexibility to cover end-of-life expenses as needed. Your policy investment will be used either as long-term care or life insurance or both. This can give seniors peace of mind knowing that they’re covered in the event of a chronic illness diagnosis, but otherwise have the life insurance available.
A stand-alone long-term care policy doesn’t offer that flexibility. If you don’t use it, you’ll lose your investment, which can be a source of frustration and impact you financially.
Why would I want to convert life insurance to long-term care insurance?
Getting ill near the end of your life can make a large dent in your finances. If you have a hybrid policy, it’s possible to “convert” life insurance to long-term care insurance. This is a great way to cover your bases in case you need long-term care.
What are the pros of a hybrid long-term care policy?
There are several key benefits of a hybrid long-term care insurance policy. Here are the top pros:
- “Use it or lose it” risk is eliminated, guaranteeing value
- Premium rates are usually fixed, preventing future rate increases
- It has less strict underwriting than health insurance
- Flexible payment options, either lump-sum or premiums over time
- Guarantee of quality long-term care, including in-home care
- Some tax benefits, depending on your situation
- Peace of mind that you’re covered in case of chronic illness
What are the cons of a hybrid long-term care policy?
While hybrid long-term care insurance has plenty of pros, there are a few cons to be aware of. Here are the most important ones:
- Long-term care payouts can reduce the value of your life insurance
- You may end up leaving less money to your heirs than you had wanted
- You must qualify medically for long-term care
- It may be expensive upfront
- It may or may not have inflation protection
- It may or not may be eligible with Medicaid partnership programs
Triggering long-term care insurance in a hybrid plan
How is long-term care coverage triggered in a hybrid plan?
In a hybrid plan, long-term care insurance is triggered when the policyholder is diagnosed with a chronic illness. Once you have the doctor’s diagnosis, you’ll submit the paperwork to begin receiving the long-term care coverage.
How is the long-term care benefit paid out?
There are two main ways of receiving the long-term care benefit. The first is a reimbursement model where the real costs of your long-term care are reimbursed on an ongoing basis.
The second way to receive long-term care benefits is a fixed-payment model where you receive a cash benefit regardless of the real cost of care. Often this is a percentage of life insurance per month. For example, if long-term care is triggered, 1-3% of your death benefit could be paid out monthly.
What are the medical eligibility requirements for getting a hybrid plan?
One potential obstacle to getting a hybrid plan is the medical requirement. While it’s less strict than health insurance, it’s still necessary. For this reason, you shouldn’t wait to get long-term care insurance until you have a serious health condition. You should be healthy enough to qualify, without buying a policy so early that you can’t afford it. Typically, people start buying long-term care insurance in the 50s to strike that balance between health and finances.
Other options for getting long-term care
What other options do I have to get long-term care?
To get long-term care coverage, you’ll need long-term care insurance or private health insurance that covers long-term care.
Medicaid also covers long-term care for low-income patients with medical need, though options are limited to Medicaid-approved facilities.
Some states also have special programs for seniors with long-term care needs, but this depends greatly on your location.
At the end of the day, long-term care insurance is the best way to ensure long-term care if you need it. Getting a hybrid policy also makes sense if you want to maintain the value of your insurance investment and use it for either long-term care or life insurance.
Insurance is always a difficult topic to navigate. If you’re looking for more information about long-term care, insurance options and other senior health topics, go to MyCaringPlan for more resources.
- Paying for Long-Term Care: How It’s Changing, Investopedia, https://www.investopedia.com/insurance/paying-longterm-care-how-its-changing/
- How Hybrid Life Insurance Pays For Long-Term Care, Forbes, https://www.forbes.com/advisor/life-insurance/long-term-care-hybrid/
- Top 10 Long Term Care Insurance Pros and Cons [Is LTCI Worth It for You?, Insurance and Estates, https://www.insuranceandestates.com/long-term-care-insurance-pros-and-cons/