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Hybrid Long Term Care Insurance is Soaring in Popularity

by Jack Lenenberg

Hybrid LTC Life Insurance Link Benefits With Guarantees

Combined Long Term Care And Life Insurance

"You got chocolate in my peanut butter!"

"You got peanut butter in my chocolate!"

And 45 years ago the first combination product was born.

Today, life and long term care insurance combination policies are resonating with consumers as well.  We are receiving a lot of inquiries from consumers.  

"Should I buy a life insurance policy with a long term care rider?"  

"Are these hybrid long term care policies worth it?"

One thing is for certain, the popularity of these combo policies is proving to not be a trend.  Sales of hybrid life/LTC policies grew 79 percent in 2010, 56 percent in 2011, and 10 percent in 2012, the fourth consecutive year of double-digit growth.

I believe the popularity of asset based long term care products is being propelled by the uncertainty and changes within of the traditional stand-alone long term care insurance market over the past 4 years.

Traditional long term care insurance has seen major underwriters such as Met Life & Prudential exit the arena; rate increases passed on older in-force policies; and the withdrawal of single pay/limited pay funding options.

I feel these changes we have seen with traditional long term care insurance have created a push-back from consumers seeking premium guarantees and single pay funding options that the combination life insurance policies with long term care insurance benefits do provide.

Now, while I personally do not have an issue with traditional policies; and in fact traditional long term care insurance may still often be the most efficient policy to address the risk of needing care, I do acknowledge by the sheer number of inquiries I receive that consumers are highly intrigued by combo asset based LTC/Life policies.

And consumer demand begets insurance company marketing.

With high consumer demand for these combination policies, insurance companies have been rolling out new products to get a piece of the hybrid asset-based pie.

With these product roll-outs we can now see that these new life insurance/LTC policies are falling within 2 distinct camps: one camp is focused on life insurance, while the second camp is emphasizing the long term care coverage.

The life insurance and the long term care insurance benefits you will receive from these 2 types of hybrid combo policies will vary greatly.

Thus, if you are attracted to the combination life insurance with long term care insurance approach, you must fully understand the differences of these two types of hybrid policies to determine which specific policy design is right for you.

Selecting your best hybrid life and long term care insurance policy

There are 2 types of life insurance policies that will offer you living benefits to pay for your long term care, if needed.

  1. Life insurance policy with an LTC rider
  2. Linked benefit long term care policy

Let's examine these two approaches and how the concerns and points of emphasis differ with these two very different hybrid life policy designs. Below we will look at actual numbers.

  • Life insurance policy with an LTC rider

You should select this option if your primary concern is life insurance or leaving a legacy for loved ones when you pass, but you still wish to have access to your death benefit for yourself if you do need to receive long term care.  Premiums with these policies are flexible, and may be guaranteed.  These policies will maximize your life insurance payout; life insurance policies with LTC riders will not emphasize your long term care insurance benefit.

  • Linked benefit long term care policy

If you are primarily concerned with long term care coverage and have less of a need for life insurance coverage, than a linked benefit long term care policy will be a good solution for you.  Linked benefit LTC policies offer an extension of long term care coverage beyond your life insurance benefits. Linked benefit LTC policies will minimize your life insurance coverage while maximizing your long term care coverage.  You may also even elect to enhance your long term care coverage with inflation protection through these linked benefit policies.  Premiums with linked benefit LTC policies are guaranteed and often are funded with a single premium.

Comparing benefits of the two types of hybrid life insurance LTC policies

Let's take a look at actual examples so you can see how these 2 approaches will differ in points of emphasis so you may decide which approach will best suit your needs.

Sample single pay deposit of $100,000; 60 year old male; Illinois resident

Strictly for comparison purposes I will use the Nationwide Your Life policy with LTC rider and the Lincoln Moneyguard linked benefit policy so you may get a sense for how the ultimate benefits will differ for you with the two approaches.

Life Insurance Policy with LTC rider

Your $100,000 deposit will provide you a paid-up life insurance benefit of $209,598 or $209,598 for long term care; if you need long term care you may accelerate 2% per month of your life insurance benefit for your long term care needs.  Thus, you will receive $4192 month for 50 months.

This approach maximizes your life insurance payout.  Should you need care, however, you simply have an option of accelerating your death benefit to you prior to death.  You will not receive any LTC benefits in excess of your death benefit.

Illustration of Life Insurance Policy with LTC Rider

Linked Benefit Long Term Care Policy

In contrast, Linked benefit LTC policies will shift the focus from your life insurance payout to your long term care insurance payout.  With these policies your life insurance benefit will be less than with the life insurance LTC rider policies; your long term care benefits will be significantly greater however.

Linked benefit policies will allow your long term care benefits to be paid out in excess of the life insurance payout.  This is known as an Extension of Benefits.  

Additionally, you have options in just how much you wish to move the needle away from your life insurance payout and to your long term care insurance coverage.  This is accomplished through your election of optional LTC inflation protection.

You may elect fixed level benefits or you may elect optional inflation protection.

Let's take a look at the differences.

1) Fixed benefits

Your $100,000 deposit will provide you with a paid-up life insurance policy of $137,419 or $413,257 for long term care.  You will receive $5726 month for 6 years should you need to receive care.  With this approach, your death benefit actually starts off high at $232,955 at age 60 and is reduced over time eventually settling to minimum specified amount of $137,419 at age 94 to account for the insurance company's increasing risk of providing you long term care coverage.

2) Inflation adjusted benefits

At age 85, your $100,000 deposit will provide you with a paid-up life insurance policy of $100,000 or $653,828 for long term care.  At age 85, you will receive $9858 month for 6 years should you need to receive care.

Illustration of Linked Benefit LTC Policy with Level Benefits

Illustration of Linked Benefit LTC Policy with Inflation Protection

Comparison Chart of Combination LTC Life Benefits $100,000 deposit; 60 year old male

Type of Hybrid Policy Life Insurance @ age 85 LTC Pool of Money @ age 85 LTC Monthly Benefit @ age 85
Life with LTC Rider $209,598 $209,598 $4192, 4 years
Linked Benefit Level $151,008 $412,257 $5726, 6 years
Linked Benefit with Inflation Protection $100,000 $653,628 $9858, 6 years

As you can see from the above benefits chart, the right insurance policy for you will depend upon upon your point of emphasis.

Should your main objective be maximizing a legacy for your survivors, you will wish to consider the life insurance policy with the accelerated LTC rider.

Should your main objective be long term care planning, you will wish to consider the linked benefit policy with extension of long term care benefits; whether it includes or does not include the inflation protection option.

Or, of course, there is always a 3rd option which is simply the stand-alone traditional long term care insurance policy utilizing a "pay-as-you-go, use-it-or-lose-it approach."

Compare all of your Life Insurance with Long Term Care Benefits options

Should you wish to take a look at your best options for life insurance policies with long term care benefits, as well as your options with traditional LTC policies please contact us at (800) 891-5824.

The benefits as well as the health underwriting with these policies can vary widely by company.  It will be in your best interest to have an independent brokerage such as ours shop around on your behalf.  We can provide you illustrations from the leading underwriters such as Lincoln Moneyguard, Pacific Life, John Hancock, CareChoice One, Global Atlantic, Northwestern Mutual, Nationwide, AXA Equitable, Minnesota Life, Mutual of Omaha, State Life and more.  Simply call us at (800) 891-5824 or complete our online request form.

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