Long Term Care Insurance

What’s the Story on Long-Term Care Insurance?

You may be thinking there is so much to know about long-term care that you couldn’t possibly learn it all in one reading.  You would be right, but we are going to give you a pretty good idea so you can walk away with the ability to make an educated decision. 

First, let's explain what long-term care insurance is.  Long-term care insurance pays for an individual's long-term care such as bathing, eating, dressing and day-to-day activities that they can no longer do on their own.  

It will also pay if you become critically ill and need long-term care as a result of your illness.  The policy pays out a set dollar amount per day for a set period of time. That dollar amount per day and period of time is all dependent upon what you and your independent insurance agent selected for your benefits.

This is dependent on your budget, how much coverage you predict you will need for future care and which type of long-term care policy you choose from.  The two options are traditional long-term care or hybrid long-term care and it’s important to know the difference.

The Facts on Life W/LTC or “Hybrid” vs. Traditional Long-Term Care policies

Traditional Long-Term Care

With traditional long-term care, you select your benefits at the outset.  These benefits are as follows: 

With these benefits, you and your independent insurance agent select the amount of coverage for each benefit type.  The nice thing about traditional long-term care insurance is your policy can be custom-tailored to suit your needs.  For as long as you pay your premiums, your policy will be in force. 

Another thing about your premiums is that they are guaranteed renewable and you can pay them (in most cases) monthly, quarterly, semi-annually or annually.

One potential drawback (if you are a person who needs something tangible to hold onto) is that with a traditional long-term care policy there is no cash value. What does this mean exactly?  

Well, it means that if you fail to use your long-term care policy because you remained healthy, then you get no money back.  In other words, for all the premiums you paid in, you get nothing.

For some, they are just happy they didn’t need to use it at all and count their lucky stars at the end of the day.  If you are not so optimistic as our positive Polly, then read on to learn about hybrid long-term care insurance. 

Pulling It All Together

By now you should know the pros, cons, and differences of both traditional long-term care vs. hybrid long-term care.  But just in case you forgot, here are some key points again:

 

Traditional 

  • You select the benefit periods at the outset

  • Smaller, more manageable, “pay-as-you-go” premiums

  • There is no cash value

  • If you don’t use the benefits then that’s it — it’s over

  • The time period benefits start can be as early as day one

 

Hybrid

  • You select the benefit periods at the outset

  • The time period before benefits start is often selected by the carrier and is usually 90 days or less

  • Your premiums will never increase

  • Your benefits and death benefit are guaranteed for the life of the contract

  • You can pay the policy premium in full at the beginning of the policy or make payments over a period of time

Hybrid Long-Term Care Insurance:

Is It Better or Not?

Now we are to the good stuff and talking about a policy you can sink your teeth into.  If you identified as the person who needed something tangible to hold on to, something that would at the very least give you back what you paid in if you didn't use it, then the hybrid long-term care policy might just be the one for you.

A hybrid long-term care policy is what they refer to in the business as “linking” your long-term care benefits to something like an annuity or a paid-up life insurance policy.  

What is nice about the hybrid long-term care option is that it is a great vehicle if you have additional assets that you can liquidate to pay up the policy premium from the onset.

 

Now, we are not recommending you use part of your retirement to accomplish this.  We are talking about an asset or savings that you may have in addition to your retirement monies. Most people don’t have an extra $100,000 lying around, but in case you do, then the hybrid policy may be your best option.  

Hybrid “linked” benefit insurance policies are typically funded upfront in a single payment, like that $100,000 you are keeping for a rainy day. Some carriers may also allow you to make installments over a period of 10 to 15 years on a hybrid long-term care policy, so check with your independent agent for the facts. 

There are many differences in state laws and regulations, especially when it comes to taxes.  Taxes are where you will find that both traditional and hybrid long-term care policies vary.

 

Each state has its own state and local tax laws which can cause qualified tax-deducted, long-term care policies to have different deduction percentages and rules.

 

The best advice that we can give you is that you should get a local independent insurance agent to help decipher long-term care tax-deductions in your state.  

How Are They Different State by State?