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Hybrid Life Insurance – A New Way to Fund Long Term Care

October 23, 2018

Considering long term care expenses is an important part of your financial planning. Learn how a hybrid life insurance policy can help you comfortably afford long term care.

The U.S. Department of Health and Human Services predicts that over 70% of people turning age 65 will require some form of long-term care during their lifetime. The average annual cost of long-term care now exceeds $100,000, and in major metropolitan areas, it can be well over $200,000. For this reason, a number of life insurance companies have recently introduced hybrid products. Learn more.

What does long term care insurance cover?

Long term care insurance is designed to cover nursing home care, home health care, personal or adult day care for individuals with a chronic or disabling condition that requires constant supervision. Long term care is generally very expensive, hence the need for insurance.

The problem at hand:

Most major life insurance companies no longer underwrite individual standalone long-term care policies for various reasons. In 2017, there were only 70,000 polices sold compared to 750,000 sold in 2000. Many life insurance companies have vacated the standalone policy marketplace and annual premiums for existing policyholders have substantially increased.

What exactly is a hybrid policy?

A hybrid policy is a permanent life insurance policy with a long-term care rider attached. In 2017, 25% of all new life insurance premiums went to policies that offered benefits for Long-Term Care (LTC) or Chronic Illness. The LTC/Chronic Illness rider allows the owner of the policy, typically the insured, to receive reimbursement for qualified long term care expenses. Death benefits are reduced dollar for dollar for any reimbursement of long-term care expenses, with a limitation on both the maximum monthly benefit and the number of months the benefits will be paid.

There is a wide variation between companies on the contractual guarantees, flexibility, and options with these hybrid policies, so a careful analysis is warranted.

What are the benefits of these hybrid policies?

Many investors are purchasing these policies because:

  • They can diversify their portfolios in a rising interest rate environment.
  • The policies are not subject to interest rate risk like bondsare and
  • The policies are a very efficient way to leverage dollars for potential long-term care expenses.
  • These contracts have a myriad of exit strategies if the death or long-term care benefit is not needed or wanted in the future. Many of these policies have cash value that can be tapped on a tax-free basis during life.

If you are concerned about long-term care expenses and the recent market volatility, please contact KLR Wealth Management, LLC.

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