Types of Long-Term Care Insurance

There are several options for anyone considering long-term care insurance. There is the traditional option and the hybrid option, also known as the linked-benefit option. There is also a life insurance policy with a long-term care rider included.

Traditional long-term care, while less expensive than the hybrid model, has its pros and cons. Its premiums are not guaranteed to stay fixed as time passes. This is a large concern given today’s economic climate where inflation is a worry on main street. But one may consider adding an inflation protection option to combat these concerns.

Typically, these policies only produce care for 3 to 6 years. If the policyholder passes away, there is no cash or surrender value available. Since this is a fast-changing industry with fewer carriers having gained more market share, be sure to confirm the details of a traditional policy with your agent, broker or advisor.

A hybrid policy is the most comprehensive option regarding long-term care policies because it includes benefits of a long-term care policy with that of a traditional permanent life insurance policy.

One way to think of this is to visualize two buckets of benefits. One has long-term care benefits and the other has life insurance death benefits. Hybrid policies typically exhaust the long-term care side first. When that runs out, the death benefit will then be used.

The two buckets is a very important feature of this option because it gives the policyholder and their beneficiaries a chance to receive any unused benefits from their investment. Some companies go so far as to guarantee 10% or 20% of the death benefit no matter what.

This guarantee alleviates a lot of concern for many clients as they worry about paying significant money into a policy and never having to use it to its full potential. Premiums are fixed as well, which is a huge benefit as compared to the traditional option.

Life insurance with a long-term care insurance rider can be cheaper than a traditional or hybrid long-term care policy. It normally comes in the form of a permanent life insurance policy.

Examples of permanent life insurance are universal and whole life policies. To add long-term care, a rider would be attached, typically in the form of a percentage of the death benefit. The percentage signifies the maximum monthly benefit one could receive for long-term care needs. Be aware that each long-term care payment will be deducted from the death benefit value of the life insurance policy.

To choose the right long-term care option for you, you’ll have to start with a conversation with a trusted professional. Talk to an agent, broker or financial advisor who represents multiple carriers.

Next, discuss with your spouse or even beneficiaries about budgetary constraints and how to deal with them. This will require a thorough review of your financials, and it may be a great time to speak to a seasoned CPA or other fiduciary advisor.

Fiduciaries are legally required to have your best interest in mind. Rather than chasing commission, they are held accountable for helping you choose the best fit for your needs. While this can be a difficult conversation, choosing a policy you have confidence in will reduce the financial burden in your senior years.

When shopping for policies, you’ll have to consider whether the carrier offers the type of care you desire.  While it’s difficult to look at what can be more than a decade down the road, it will be important to go with an option that has a diverse range of care. Consider nursing homes, assisted living facilities and coverage for in-home care by a home health aide.

If you have a family member or good friend who you’d like to be responsible for your care, make sure your policy allows for that. Some policies require a licensed professional while others don’t. This may be best seen in a life insurance policy with a long-term care insurance rider attached.

Many clients choose to not go with any option above and instead pursue a “5-year spend down.” This refers to a strategy where the individual will choose to disburse their assets to gain eligibility to Medicare in the future.

This is not the most desirable route to take, as an applicant must have income and assets under a specified amount. According to the American Council on Aging, it also prohibits gift giving, which would deny eligibility to Medicaid. Allowable Medicaid spend down items (effective January 2023) are accrued debt, medical devices, home modifications, vehicle repairs, life care agreements, annuities and irrevocable funeral trusts. As this topic can get complex quite quickly, speak to your trusted attorney, CPA or financial advisor to gain information for your specific situation.