Hybrid Policies

What are Hybrid Policies?

The U.S. Department of Health and Human Services survey shows that more than half of the Americans aged 65 or older will need long-term-care at some point in their life.  Historically, most people have purchased traditional long term care insurance ensuring they are protected if they should need care over an extended period of time. However, premiums for these policies can increase over time and if you never use the benefits there is no refund of premium (“use it or lose it”).   Therefore, an increasing number of people are now considering the hybrid or asset based solution.  This policy combines long term care insurance with a life insurance component. If you never use the policy to pay for care there is a death benefit, the premiums will never increase and if you cancel the policy there is a cash surrender value.

What does a policy cover?

The hybrid long term care policy, similiar to the traditional policy covers care at home (“there is no place like home”), in an assisted living facility, Nursing Home or Adult Day Care.  This type of care is typically not covered by your health insurance or Medicare and could be very costly.

What is the average cost of care?

The cost of care will depend on the type of care you need and where you receive the care.  For example, in New Jersey the average cost of care is:

Home Health Care:  $25 per hour or $250 per day for a full time Certified Home Health Care Aide.

Assisted Living:         $5,000 – $9,000 per month

Skilled Nursing Facility:   $350 per day – $450 per day or $10,500 per month to $13,500 per month.

These costs can vary depending on the type of care needed.

Can you customize your plan?

Yes.  You choose a monthly benefit, a policy limit and an inflation rate.  Typicaly there is a built in one time 90 day elimination period or deductible.  The premium will be based on the benefits you choose, your age, and health.

How do you qualify for benefits?

There are two benefit triggers.  You only need to satisfy one to qualify for benefits.

The first benefit trigger is being unable to perform at least two activities of daily living (ADL’S) with the expectation that you will be unable to do so for at least 90 consecutive days.

The ADL’s are:

• • Bathing
  • Continence
  • Dressing
  • Eating
  • Toileting
  • Transferring

And the second benefit trigger is that you require supervision due to a severe cognitive impairment such as dementia or alzheimer’s.

What happens at claim time?

When the need for care arises and your claim is approved, the insurance company will reimburse you for your care up to the monthly benefit amount.  The first pool of money you access is your death benefit.  Once this is exhausted your monthly benefit will continue under the long term care rider. Depending on the company you choose the long term care rider can offer lifetime coverage or a limited benefit period such as 2, 3, or 4 years).

When should you consider purchasing a long term care policy?

Most people purchase this coverage in their 50’- 60’s.  They may have had an experience with a family member and understand that health insurance and Medicare do not cover this type of care. They have seen first hand how the cost of care can impact the family both financially and physically.

Why isn’t everyone choosing this option?

With the above information why wouldn’t everyone chose this option?  You guessed it!!  It is more expensive than the traditional long term care policy.  The premium for these policies are typically paid up front with a one-time premium.  Several companies have now come up with a way to pay the premium over 5,,10, 20 years or even on an ongoing basis.

Funding typically comes from non retirement dollars either in a CD or savings.  Dollars originally set aside to self- insure can be repositioned and leveraged to pay for this type of policy.

How do you know what solution is right for you?

When comparing traditional long term care to the hybrid policy one is not better than the other.  Both will provide the funds to pay for care.  The solution that is best for you will depend on your own personal situation (health and wealth) and what you are looking to accomplish.

It’s important to work with an Independent Long Term Care specialist who understands which company will offer you the best coverage given your medical history.

 

About The Author

Linda Kubit is the Director of Insurance Planning at King Financial Network. Linda focuses on defining an individuals’ insurance risk related to Life & Long-Term Care and provides appropriate solutions that are independent and customized to fit their needs.

Engage with the entire King Financial Network team on www.kingfn.com to see what other expert advice we can provide towards your financial well-being.

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