Life Insurance With Long-term Care: When a Hybrid Policy Makes Sense

Combination life insurance, or hybrid insurance, combines long-term care (LTC) and life insurance policies. While you can’t foresee the future, it never hurts to plan for situations in which you may need long-term care or ensure your family has financial security when you pass. A hybrid life insurance policy may fit your needs most in these situations. 

Here’s a look at what a hybrid long-term care insurance policy entails for older adults.

How a Hybrid Life Insurance Policy Works

A hybrid life insurance policy allows you to use both long-term insurance and death benefits. For example, if you don’t use your long-term care insurance, the leftover funds can be applied to the death benefit amount of the life insurance. And, vice versa, if you run out of long-term care insurance coverage, your policy may allow you to transfer funds from your death benefit to continue paying for long-term care. 

Why You Might Consider Combining Policies 

Using life insurance with long-term care can give you more flexibility in using your long-term care coverage.

According to the American Association for Long-Term Care Insurance (AALTCI), your lifetime chances of using long-term care insurance are between 35% and 50%. There is a 50/50 likelihood that you will use this insurance policy to pay for home health care, respite care, assisted living facilities, etc. 

Long-term life insurance premiums are quite expensive on their own, and your prices vary depending on age, pre-existing health conditions, and lifestyle habits. A hybrid policy could help you cover costly in-patient and institutional care. 

Remember, Medicaid won’t cover your long-term care expenses unless you meet Medicaid’s eligibility requirements, particularly income, to receive coverage. Those ineligible for long-term care coverage through Medicaid will have to pay out-of-pocket. 

Below are some additional reasons why a long-term life insurance policy might be your best choice.

• Tax-free death benefit for beneficiaries: A hybrid life insurance policy is set up so that death benefits are tax-free for your beneficiaries, as the IRS states that they are not considered part of your gross income. However, any interest you receive on death benefits is taxable. Getting a hybrid life insurance policy that includes a long-term care benefit can alleviate the “use it or lose it” problem, in which you end up concerned long-term care insurance that you may never use. 
• Access to cash value for long-term care expenses if needed: If you choose a hybrid life insurance policy with permanent life insurance, you can access your cash value to pay for long-term care or other expenses. 
• Potential for policy to grow cash value over time: As you pay your premium, you can increase the cash value of your policy, which you can use in emergencies or other situations. 

Hybrid Life Insurance Policy Limitations and Drawbacks

Here are some potential disadvantages to using a hybrid policy. 

• Premium costs can be higher. Purchasing a standalone long-term care policy can be cheaper without adding a life insurance policy. Before choosing a hybrid life insurance policy, consider how much you’re willing to spend on premiums.
• Benefits may not cover all long-term care costs. Although you’ll have two policies, you may still have to pay out-of-pocket for some of your LTC expenses your insurer won’t cover. 
• The medical underwriting process is longer. Insurance companies will use your health status to determine how much coverage you need, the price, and any exclusions or limitations. While a hybrid insurance policy is easier to obtain since the underwriting process is less stringent, it can take longer — up to 90 days for your policy to start, compared to a traditional life insurance policy, which can take about 30 days. 

Types of Combination Long-term Care Life Insurance Policies

Below are the three types of hybrid life insurance policies:

Life Insurance with a Long-term Care Rider

A long-term care rider is an add-on to a life insurance policy. Life insurance with long-term care rider provides additional financial security if you cannot care for yourself. Whole life insurance with a long-term care rider is an example of this type of plan, in which you can receive permanent coverage for your entire life.

Chronic or Critical Illness Rider on Life Insurance

If you live with a chronic condition or critical illness that meets a rider’s requirements, you can access the partial or full amount of your death benefit before you pass away. However, you must add this rider to your life insurance policy before you develop a qualifying condition. 

Linked Benefit Life Insurance

A linked benefit life insurance policy combines life insurance with a long-term care policy. These policies provide better coverage and greater flexibility than standalone policies. 

What Companies Offer Hybrid Long-term Care Insurance?

If you’re considering hybrid long-term care insurance, here are some insurance companies that offer this policy:

• John Hancock
• Lincoln Financial 
• Mutual of Omaha
• Nationwide
• New York Life
• Northwestern Mutual
• OneAmerica
• Prudential
• Securian Financial 

Most companies will require you to complete a health questionnaire or a phone or face-to-face interview. The insurer may also request your medical records and prescription history. 

Sometimes, you may also need to complete a life insurance medical exam to ensure you meet the eligibility requirements for both policies. A life insurance medical exam comprises a questionnaire and a basic physical exam, also known as a paramedical exam. 

Comparing Hybrid Policies to Traditional Options

There are several factors to keep in mind when comparing a hybrid policy vs. standalone long-term care insurance:

1. Cost: A hybrid life insurance policy costs more than a traditional, standalone long-term care policy. Yet, LTC premiums can increase over time, while hybrid insurance premiums stay the same. 
2. Death benefit: Hybrid life insurance policies include a death benefit that can be used to pay for long-term care if necessary. With a long-term care policy, there’s usually a “use-it-or-lose-it” approach, so if you don’t use the policy for long-term care, nothing is paid when you pass, and there’s no reimbursement for your premiums. 
3. Cash value: Hybrid insurance often has a tax-free cash value if there are no withdrawals; long-term care insurance doesn’t offer this benefit.
4. Benefit payments: Long-term care insurance benefit payments are typically larger than hybrid insurance policy payments. 
5. Medicaid eligibility: Unlike hybrid life insurance policies, traditional LTC policies may be eligible for state Medicaid’s Long Term Care Partnership Programs. Having a partnership LTC policy protects you from Medicaid asset recovery programs. 
6. Application process: Hybrid insurers tend to have less stringent underwriting policies than standalone life insurance and long-term care policies, making it easier to get approved. While getting approved for hybrid insurance is easier, standalone policies can have shorter waiting periods of 30 days, compared to up to 90 days for combined insurance policies.

Cost Comparisons and Potential Savings with a Hybrid Policy

Here’s a cost comparison table of hybrid, long-term care, and separate life insurance and long-term care policies.

Type of Insurance	Average Cost
Hybrid or combined insurance (linked-benefit long-term care for singles 55 years old)	$3,625 – $7,010 per year
Long-term care insurance (singles 55 and 65 years old)	$900 – $7,225 per year
Separate whole life insurance + long-term care insurance	$5,400 per year $900 – $7,225 per year

Note: If you purchase a hybrid life insurance policy with your spouse, some insurance companies may offer discounts to lower your premium costs. You’ll have to contact the insurer to confirm they offer couples hybrid life insurance policies are available. 

Bottom Line

If you want both traditional life insurance and long-term care insurance, a combination life insurance policy may make sense for you. A hybrid insurance policy allows you to apply death benefits to long-term care and vice versa. Your upfront costs will be higher, but your premium rates won’t change, so you’ll pay the same rate for the duration of your policy. 

Work with an independent insurance agent or consultant, or speak with your financial advisor to determine whether a hybrid policy is the right choice for you to secure your future.