LTC Hybrids

Hybrid long-term care plans are a variation on traditional long-term care (LTC) insurance and fall under two categories:

1) Life Insurance with a Long-Term Care Benefit
2) Annuities with a Long-Term Care Benefit

Long-term care hybrid products are also called linked benefit or asset based long-term care policies. These LTC hybrid products can offer several advantages:¹

Guaranteed Benefits - They guarantee benefits will always be paid, in one form or another.

Guaranteed Premiums - Most policies guarantee that premiums will never change.

1035 Exchanges - Some asset based long-term care insurers permit 1035 exchanges. The tax advantage of utilizing a 1035 exchange is to defer the internal build up of gains associated with your existing annuity or cash value life insurance policy. ²

A life insurance policy with long-term care benefits works by accelerating the life insurance death benefit to pay for your long-term care. If you never need long-term care, your estate receives a tax-free death benefit.

• Depending on the policy, you can choose to pay one lump-sum premium, pay it up in 5 or 10 years, and some policies offer continuous pay premiums.
• The policy provides a pool of money for long-term care that’s equal to several times your premium payment. Some policies offer an unlimited pool of money.
• If you use your policy for long-term care, the death benefit is decreased by the amount of long-term care benefits used.
• Requires health underwriting

A long-term care annuity functions like a fixed annuity, but it has a long-term care multiplier built into the policy. If you need long-term care, a part of the contract pays the long-term care benefit.

Long-term care benefits are calculated on the amount of coverage selected when the policy is purchased. For example, the insurance company offers an LTC payout of 200% or 300% of the total policy value. A policyholder with a $100,000 annuity who had selected a total benefit limit of 300% would have an extra $200,000 available for long-term care expenses, after the initial $100,000 policy value is used. If long-term care is never needed, the annuity value is paid to the beneficiary.

• A long-term care annuity may allow you to access cash value during your lifetime -- even if you never need care.
• When the annuity contract matures, your contract’s remaining cash value may be passed on to your beneficiaries.
• Health qualification (health underwriting) is often less stringent than long-term-care life insurance and traditional long-term care insurance. This can make the long-term care annuity a valuable option if you have a pre-existing health condition, or if you've been turned down for long-term care insurance.