Hybrid Long-Term Care a.k.a. Link Benefits Policy

A hybrid long-term care policy is usually a whole or universal life policy with a long-term care rider attached to it. You can also use certain annuities that have a long-term care benefit or can be used to fund a whole-life insurance policy with a long-term care rider.

Life Insurance with Long-Term Care: I have to admit, that for someone who has the means, this is usually the way to go. If you recall, with a traditional long-term care policy, you pay a premium every month or year and you may never use it. That means, you may pay out in premiums ten’s of thousands of dollars and never see a dime of benefit from it. 

Hybrid life insurance policies with an extension of LTC insurance benefits are designed to lessen the cost of the life insurance component while maximizing the LTC benefits. To maximize the LTC benefits and keep premiums as low as possible, the hybrid plans are more careful with health underwriting than a hybrid plan that is tied to an annuity. 

Hybrid Life Insurance with Extension of LTC Benefits

1. Death Benefit a.k.a. Leave A Legacy — Because a hybrid life insurance policy with LTC benefits is first an actual life insurance policy, that means there is a death benefit that is passed to your heirs or beneficiaries after you pass away. The death benefit should be and typically is greater than the premiums you’ve invested into the policy. Therefore, unlike a traditional LTC policy…at least someone benefits financially (typically tax-free) from the money invested into the policy providing the LTC benefits weren’t exhausted.
2. Lifetime LTC Coverage — Policies can be structured where if you “go on claim” and need care beyond the base years of coverage, you can still receive LTC coverage for life. Take a look at the graphic below. You will see that only 13.5% of LTC policy holders (of all policy types) exhausted their benefits before they passed away. Then look at the image below that and you will see how long and how much some insurance companies have paid out to a policy holder.
3. Guaranteed Premiums — Many of these policies are funded with a lump-sum premium. Meaning, you invest say $100,000 into the policy and you are done paying and your life and LTC benefits are guaranteed for the length of the policy or until your death. Even those that offer premium payments over a period of years, still guarantee the premium.
4. Cash Value — Because it’s a whole-life or a universal life policy, there’s a cash value, that if necessary and if rational, can be used to fund other expenses. Any withdrawal of the cash value should only be done after serious consideration and understanding the ramifications of doing so…e.g. you may lose or have less of some LTC benefits and death benefit.
5. Return of Premium — In case you ever want to or need to surrender your policy, this is typically an option. You may or may not incur a penalty if you do this. So, understand this before purchasing your policy and before requesting a return of premium. 
6. Asset Protection — Get the security of a life insurance policy that grows at a minimum, tax-deferred interest rate. You don’t have to use assets and/or investments that have a higher return on investment. 
7. Tax-free Benefits — Pay no income tax if you use your life insurance for qualifying long-term care expenses — should you need them of course. Your LTC policy creates an income tax-free pool of dollars to pay for long-term care expenses. 
8. Flexible (Somewhat) Premium Options — Your new LTC policy can be funded by using your existing assets, such as a CD, savings or IRA, as a one-time-only premium payment, or choose guaranteed annual premiums that can never increase. Annual premiums can be structured to pay the policy in full over a 5 year, 10 year, 20 year or lifetime option.

Annuities with LTC Insurance Benefits

Instead of purchasing a life insurance policy and adding a long-term care rider, with a Long-Term Care Annuity you  make a lump-sum purchase (single premium payment) of either an immediate or deferred annuity.

A basic Long-Term Care Annuity will either create two funds—one fund is set aside specifically for long-term care expenses and the other fund is a separate cash fund. In the event that the LTC funds aren’t used or is used partially, the remaining value can be passed on to your heirs.

A Long-Term Care Annuity can also be used to purchase a LTC life insurance policy. This works by funding an annuity with a lump-sum premium coming from either your conservative assets or an IRA (yes you can fund from an IRA). In this case, the monthly or annual distribution from the annuity goes directly to pay for the life insurance premiums. This may be set up to pay in full over a 10 year period. Thus exhausting the annuity at the end of the 10 years and leaving you with a fully-funded life insurance policy with a long-term care benefit. *There may some tax implications with this, so, be sure to consult your accountant prior to purchasing this option.

Benefits Of Using An Annuity To Fund or Cover Long-Term Care

1. Easier To Qualify For — With liberal underwriting, they either require less or no medical underwriting at all. And are typically available to people up to the age of 85. 
2. Maximum Income Stream — These annuities may also be designed to maximize a guaranteed income stream in the future.
3. Interest Earning — Annuities can and do earn interest. This is not really a reason as to why you should purchase an annuity, it’s just an added benefit.
4. Leverage — As with most types of insurance, you are leveraging what may be a small sum to purchase the possibility of a much, much larger benefit should you need it.
5. Tax-Free — Any long-term care benefits you receive from the annuity will be tax free.
6. Steady Income and Protection — if you want the steady monthly income an annuity provides and protection against outliving your assets, then you should consider annuities with long-term care benefits…especially if you could benefit from the simplified health underwriting.

The Downsides Of A Long-Term Care Annuity

1. Large Sum Up Front — You either have it or you don’t.
2. Less Flexible — Not as flexible as a life insurance policy with a LTC rider. No cash value and no or costly return of premium.
3. Taxes — There could be tax implications when using certain funds to purchase an annuity to fund a long-term care policy. Check with your accountant before purchasing a policy.
4. Less Long-Term Care Benefits — Compared to a traditional LTC policy or a life insurance policy with a LTC rider, the long-term care benefits may not be as much.

Should You Consider A Hybrid LTC Policy? Answer These Questions:

• Do you want to help safeguard the rest of your estate by making sure potential long-term care expenses are covered?
• Do you have average or better than average health?
• Do you want to help protect loved ones from the stress and expense of providing long-term care to you?
• Do you have a CD maturing or assets in conservative accounts (savings, money market) and you want to redirect it to cover your potential long-term care needs? Yes, there are ways to use your IRA to fund the purchase of a LTC policy.