There are some key differences between a traditional long-term care policy and a hybrid policy. Traditional long-term care coverage generally increases to match the rising cost of long-term care services. There is a level of security in knowing you are covered in the event of a prolonged condition that requires daily care for activities like eating, bathing or dressing. However, if your health holds out until you die, your only benefit was the peace of mind knowing you were insured. Additionally, the premium is not guaranteed; therefore, the insurer can raise prices as they need, which we’ve seen happen.
A hybrid policy is basically permanent life insurance with a long-term care rider. You pay a fixed, guaranteed premium over the life of the policy, and your beneficiaries receive a death benefit when you die. However, if you need long-term care coverage, your death benefit is advanced to you as a predetermined monthly benefit, regardless of your actual costs. The money used reduces the balance in your life insurance plan. Should you die, any amount leftover is paid as life insurance to your beneficiaries.
If you are considering a hybrid policy, there are several factors to keep in mind. You need to consider the claims-paying ability of the insurer. There are several companies that provide life insurance well, but there are a limited number of companies that provide solid long-term care policies. However, there are only a few that do both effectively. You need to be careful the long-term care rider matches the risk you want to insure against. Some insurers will offer a “chronic illness accelerated benefit,” but the qualifications are very specific, and are typically more restrictive than a long-term care or hybrid policy.
You also need to consider the insurer’s resources to handle long-term care claims and the nature of how claims are processed. Most policies operate with a reimbursement model, which means you will have to use and pay for professional services then submit the invoices to the insurance company for reimbursement. Alternatively, some policies pay claims based on an indemnity model, which allows you to use your benefit as you wish: for example, to pay a family member for the care they provide. While this certainly provides more flexibility, it can come at a price.
The type of policy that will work for your situation depends on your overall financial plan, how much you are willing to self-insure, and of course, how much you are willing to spend for coverage.