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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 Benefit2) 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.
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.
1The scenarios above are basic examples of how hybrid long-term care insurance works. Policies available will vary by state and coverage may differ depending on age, health, gender, premiums and benefits requested. For an accurate proposal, please contact us for an illustration specific to your situation.
2We do not offer tax or legal advice and strongly advise that you consult with your accountant or tax professional.