What is the difference between traditional and hybrid long term care insurance?
Traditional long-term care insurance (LTCi) is a type of insurance that helps cover the costs of long-term care services, such as nursing home care, home health care, and adult day care. These policies typically have a set daily or monthly benefit amount, a benefit period (the length of time the policy will pay out benefits), and an elimination period (the length of time the policyholder must pay for care before the policy begins to pay out benefits). The policies may also pay out for non-professional care provided by a spouse or loved one, depending on the policy model.
Hybrid long-term care insurance, also known as “combination” policies, combines traditional long-term care insurance with another financial product, such as a life insurance policy or an annuity. These policies provide long-term care benefits, but they also have a savings or investment component. This means that if the policyholder doesn’t use the long-term care benefits, the savings or investment component can be passed on to beneficiaries tax-free as a death benefit.
The main difference between traditional and hybrid long-term care insurance is that traditional LTC policies only pay out benefits for long-term care, while hybrid policies have a savings or investment component in addition to long-term care benefits. Hybrid policies may also offer more lenient underwriting than traditional policies.
Long-term care services in the U.S. can cost an average of about $121,000 for just under a year of care, according to the HHS, making coverage an important way to protect savings.
Don’t be a burden on your family.
Currently, 38 million people, which is equivalent to about 11.5% of the population, are taking care of their loved ones.
Four out of five of these caregivers work a paying job while simultaneously caring for their loved one. Often, they have to make accommodations such as cutting back hours or quitting altogether, which can have large financial implications on their future. Loss of earnings, Social Security benefits, job security, career mobility, health insurance and retirement savings are just a few examples of the sacrifices caregivers often have to make.
Every parent wants their child to feel safe and protected, not burdened by the financial and time constraints that come with caring for an aging loved one. Long-term care insurance can be part of the solution.
You choose where you want to receive care. You do not have to leave your home.
When was the last time you heard someone say: “I can’t wait to go to a nursing home!”? Without the proper insurance planning, you may not have a choice. Nursing homes are typically the only solution that is covered by Medicaid.
Today, long-term care insurance policies provide coverage irrespective of where you receive care – at home, in an adult day care, assisted living facility, nursing home or even in hospice care. Many current policies also add an alternative plan of care in the event that new forms of care become available in the future.
Reduce your risk of depleting your assets.
While many affluent investors can afford to self-insure, transferring the risk to the insurance company and preserving assets for future generations is a stronger long-term investment strategy.
Save on taxes.
There are several tax incentives used by state and federal governments to encourage the purchase of long-term care insurance. Many states offer tax credits and deductions. Federal tax incentives include allowing the use of health savings accounts (HSAs) to pay long-term care premiums, a tax deduction for premiums paid by employers or self-employed individuals, and a tax deduction for long-term care expenses equating to over 10% of your income. Please consult with your tax advisor for additional information.