Traditional vs. Hybrid Long-Term Care Insurance

Long term care insurance is an important consideration for many people, and the types of coverage can vary significantly.

What is the best for you? In general, GoldenCare is usually the best. (View Rates)

My top 4 overall best long term care companies:

1. GoldenCare: wider variety of plans
2. LTCRplus: free legal support and objective advice
3. CLTC Insurance Services: clear and simple plan comparison
4. LTC Financial Solutions: easy online interface

One of the earliest considerations is whether you want traditional coverage, which works as a standalone policy, or hybrid, which is often linked to another policy such as life insurance.

Like most consumer-facing providers, GoldenCare is a national agency that can use its size and reputation to find the best rates and coverage for your needs.

To make the decision whether you want hybrid long term care insurance or a traditional policy, it’s important to understand a few key factors.

Long Term Care Insurance

Long term care insurance is an insurance product that helps to cover:

• Some or all of the costs associated with long term care
• Costs not covered by your health insurance
• Costs not covered by Medicare or Medicaid

Long term care insurance helps you live as you normally would (i.e., daily activities), yet it does not cover the treatment of actual medical conditions.

Long term care insurance covers personal care when you are unable to perform two of the six activities of daily living (ADLs) due to a long term physical illness, physical disability, or cognitive impairment:

• Bathing
• Eating
• Dressing
• Toileting
• Continence
• Getting in and out of bed or a chair

LTCI care is not necessarily skilled care and can be provided in various settings including in a facility or at home.

Many believe that long term care is only needed by the elderly. It is true that most people over the age of 70 will require long term care; however, today 42% of individuals under 65 are also receiving long term care. Keep in mind that even at a younger age you may still be at risk of suffering a critical physical injury or developing a neurological disorder like early onset of Parkinson’s or Alzheimer’s disease.

Now, let’s compare traditional vs. hybrid long term care insurance.

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What Is Traditional Long Term Care Insurance?

Traditional long term care insurance policies are similar to auto or medical ones in that you “pay-as-you-go” through monthly premium payments.

These plans do not typically have a return of premium feature unless you purchase a death benefit rider. Hence, premiums are much more affordable on traditional long term care insurance policies.

What Is Hybrid Long Term Care Insurance?

Hybrid, combined or “linked” long term care policies typically feature a life insurance component with a long term care rider. There are also annuity-based policies where an existing insurance policy (from a different carrier) can be “linked” to a long term care rider.

Generally, hybrid policies have a single upfront premium but may also have a set of premiums for a fixed term or ongoing premium payments. Again, though, most require a single payment that is made upfront.

What many people like about hybrid policies vs. traditional ones is the policy does three things instead of one: you get a life insurance policy, long term care insurance, and guaranteed return of premiums. Some hybrid policies also return a percentage of premiums paid if you cancel the policy before the end of the surrender charge period.

Eligibility

Typically, underwriting is stricter with traditional policies and may require medical records, a medical examination or cognitive interview, etc., depending on your age, health, and family health history.

If you are young, a non-smoker, and healthy, you should be able to qualify easily for a traditional plan. As with all long term care insurance policies, it’s best to purchase coverage by the age of 60 to receive more affordable premiums and to meet underwriters’ coverage requirements.

Since hybrid policies have a single-premium payment, underwriting can be less strict. That’s because the funds from that single-premium payment will be used to cover claims before the policy pays out benefits.

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Premiums

Premiums for a traditional policy are typically 2-3 times less than with a hybrid policy, making the plans much more affordable.

Premiums will vary by carrier and are based on what you select for your daily/monthly benefit amount, benefit period, inflation protection, waiting/elimination period, and any riders. Traditional plan premiums can also increase in the future similar to auto or medical insurance, whereas hybrid policy premiums are fixed.

Qualifying For A Claim

Benefit “triggers” are what carriers use to qualifying a claim for coverage. The triggers may be based on the inability to perform two or more of the six ADLs previously listed, a cognitive impairment or a doctor acknowledging that care is necessary.

When shopping for policies make sure you clearly understand what triggers are included in the plan as well as the exact definition of each one. With either type of policy, a care coordinator or physician determines the plan of care and when benefits go into effect, usually after the policy’s waiting period.

Waiting Period

Each long term care insurance has a waiting period before benefits begin, with 90 days being the typical waiting or elimination period. With a traditional policy, you can choose your waiting period when setting up your policy. With a hybrid policy, the carrier determines the time frame. During the waiting period, you continue to pay your premiums.

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Benefits of Coverage

At the time you set up your policy, you will determine how much you want in daily or monthly coverage, how many years of coverage you desire (1, 2,6, unlimited), and the type of coverage you want: facility, home care, and/or daycare.

Again, benefits include personal assistance with daily activities that you normally could do but cannot presently perform because of a physical illness, disability or cognitive impairment.

You can select reimbursement of benefits, just as you would with a medical insurance coverage and be reimbursed for the specific services received. Or, you can select a cash or disability coverage.

A cash benefit is paid out as a monthly total based on how much coverage you purchased. For example, say you purchased $6k/month. You will receive that amount regardless of how or where you receive service. We recommend this option over reimbursement.

The cash benefit is a more expensive choice than reimbursement, but it can be simpler to plan for and manage. With a cash benefit, you can even use some of the funds to cover caretaking services provided by your spouse or another family member that wouldn’t typically be itemized under a reimbursement benefit.

Some plans may have built-in premiums, including a waiver of premium while you are receiving long term care services, a non forfeiture benefit, alternate care (if a new service is added as a benefit in the future) or a cash benefit, which may be automatically included in the policy.

Benefit Riders

Different riders are available under either policy type. We recommend you review available riders with your insurance agent or financial advisor before adding any to your plan.

Examples of Long Term Care Insurance Riders:

Inflation Riders

This rider adjusts your daily or lifetime maximum benefits for inflation at predetermined times set in your policy, allowing for your benefit payout to keep up with anticipated inflation rates.

Increased Benefits

This rider increases the daily or the lifetime benefit limit on your existing policy.

Spouse Survivorship

Upon the death of your spouse, you won’t have to pay his/her long-term care insurance monthly premiums but you still receive long-term care coverage.

Shared Care

This rider lets you and your spouse to “share” your benefits instead of carrying separate policies.

Return of Premium

This is an important rider especially if you do not go with a hybrid policy. This rider guarantees the return of premiums you paid on the policy (partial or all) will be returned to in full after the end or suspension period of your policy. Adding this rider can significantly increase your premium.

Traditional plans also have guaranteed renewal and are inflation protected (some with a rider), while hybrid policies have guaranteed premiums but are not inflation protected (without a rider).

With a traditional long term care insurance that has a lower annual premium, you can invest your savings into higher-yielding accounts instead of investing a potentially large portion of savings into a hybrid policy which yields a much lower rate.

Tax Qualified Long Term Care Insurance Policies

Check with your financial advisor and inform yourself about potential tax benefits of the long term care insurance policies you are considering. Older long term care insurance policies may be tax-qualified; therefore, you will want to understand the tax implications of linking an older policy to a new one.

Typically, traditional long term care insurance policies are tax-qualified but not hybrids. Again, check with your financial advisor on all tax implications.

And, as always, purchasing a long term care insurance plan is a big decision and one that we highly recommend you discuss with your insurance agent or financial advisor.