New hybrid policies may be good alternative to traditional long-term care insurance

In March I gave tips for preventing or resolving the difficulties that may arise when trying to collect benefits from older, traditional long-term care insurance policies. In this post I describe the new "hybrid" long-term care policies that have come to the market as the industry has matured. These new policies overcome many of the issues that beset holders of the older policies.

Among the attractive features of the new policies is their greater affordability. In fact, if you have an existing annuity or life insurance policy, you may be able to convert it to a new policy with a long-term care rider without any additional expense.

Why do you need long-term care protection?

The 2014 Genworth Cost of Care survey reveals that the median annual cost for a private room in a nursing home in Florida is now a staggering $91,615.00; a semi-private room, $83,950.00. If you have worked hard to build a nest egg and want to make sure your family isn't wiped out by long-term care costs, long-term care insurance may be the answer.

While there is no way to know if any one individual will need long-term care, statistics show that it is a significant risk. According to the U.S. Department of Health and Human Services, someone turning 65 today has an almost 70% chance of needing some type of long-term care services and supports in their remaining years. Women need care longer (3.7 years) than men (2.3 years). One-third of today's 65-year-olds may never need long-term care support, but one fifth will need it for longer than five years. 

Features of the traditional policies

Before discussing the new hybrid policies, let's list the main features of the older policies, so we have a basis for comparison. With the traditional policy:

• You pay an annual premium, either in a lump sum or in installments.

• You continue to pay the premiums to keep the policy in force until you either file a claim (assuming you have a waiver of premium clause in the policy), or until you pass away.

• If you fail to pay premiums, the policy is forfeited. There are no refunds. You derive no benefit from the premiums you  paid to date.

• The insurance company has the right to raise premiums at any time by seeking approval from the State Insurance Commissioner.

Features of  hybrid policies

The new hybrid policies fall into two types: annuity-type policies, and life insurance policies with a long-term care rider.

All of the annuity-type policies, and most of the life insurance-type policies, provide for a single lump sum payment at the inception of the policy. You do not have to pay anything beyond that, ever. The premium and benefits are fixed and can never be altered by the insurance company. 

If you never file a claim, depending on the policy, you may be entitled to a return of most of the premium on an annuity-type policy, or a death benefit greater than the premium on a life insurance-type policy.

If you wish to cancel a policy of either type, you may be entitled to a substantial return. 

Also, if you have an existing life insurance policy or annuity, you may be able to exchange it for a hybrid policy tax-free, without having to pay anything for an additional benefit. You will, of course, have to pass a physical exam. The life insurance policy may offer a lower death benefit than the existing policy, but a substantial long-term care benefit.

Traditional Long-Term Care Policy vs. Hybrid Policy

	Traditional Policy	Hybrid Policy
Premiums	You pay the premium annually or in periodic installments.	Annuities and most life insurance policies: you pay a lump sum at the inception of the policy. No additional premiums thereafter. Some life insurance policies may offer annual premiums.
Policy Lapse	Policy will lapse if you fail to keep up with the premiums. No refunds. No benefits from premiums paid to date.	Policy remains in force after initial payment, except life insurance policies with annual premiums, which must be paid.
Premium Increases	Premium increases may occur if company gets approval for increase from State Insurance Commissioner.	No increases.
Filing a Claim	When you file a claim and if your policy has a waiver of premium clause, you will not have to continue to pay premiums.	With a lump sum annuity or life insurance policy, you may owe no additional premiums. With the life insurance policies that have additional premiums, you will have to make payments even after you have filed a claim, unless you have a waiver of premium clause in your policy.
If You Never File a Claim	No return on what you’ve paid in.	On an annuity type policy, you will be entitled to a lump-sum payment when you cash in the policy, or upon your death. With a life insurance policy, you will be entitled to a death benefit as scheduled.