Until recently, consumers had few choices when it came to long term care insurance. Traditional policies, which provided a certain amount of chosen coverage, were the norm. Policies could intended to cover care expenses for a few months, or much longer, already providing benefits for the insured’s lifetime. For example, consumers could buy coverage that would provide $100 a day in benefits for a period of three years. When calculated, the $100 daily assistance multiplied by 365 days in a year for 3 years would create a $109,500 “pool of money” obtainable for care. This pool of money would pay for care in a nursing home, assisted living facility, adult day care, or in the personal residence of the policyholder once certain criteria had been met.
When the pool of money was depleted, the traditional policy would provide no more benefits. However, if the policy was never used, the owner would lose the investment of his or her premium payments. consequently, some seniors opted not to buy these policies, deciding instead to rely on their families or current savings in the event that care became necessary.
With the cost of health care rising rapidly, and a single day in a nursing home costing $175 or more in major cities, self insuring is a risky proposition. Relying on family is an different, but not necessarily a viable one. Unfortunately, most families do not have the time, resources or ability to provide around the clock care to a loved one.
The Introduction of Hybrid Policies
The insurance industry realized that consumer needs were not always being met with long term care policies. While traditional policies were satisfactory for some, many others wanted more guarantees in the event their policy was never used. consequently, these traditional policies additional a “return of premium” rider. If the policy was not used over a set period of time, say 10 years, then the insurance company would return a portion of the premiums to the policy owner or a family member. This, like any other rider, came at an additional expense to the purchaser.
In response to customer and agent need, insurance companies have designed what can be best described as hybrid or connected policies. These policies combine the benefits of an annuity or life insurance agreement with a traditional long term care contract. With hybrid policies, the consumer has the guarantee of long term care benefits or, if no care is needed, the potential of insurance benefits to themselves and their beneficiaries.
Long Term Care and Life Insurance
Hybrid policies work in several ways. One policy links long term care to a life insurance policy. With this plan, the insured deposits a set premium into a policy. Depending on the age, gender and health of the client- an immediate pool of money is produced for long term care. At the same time, an immediate death assistance is produced in life insurance. Take, for example, a healthy 65 year old non-smoking woman with $175,000 in liquid assets. If she deposits $50,000 into this account, approximately $87,000 in long term care benefits would be produced closest. There would also be a death assistance to her beneficiaries of approximately $87,000 produced from the life insurance part of this account. At an additional cost, she can select a assistance rider which would provide approximately $260,000 in long term care benefits as oppose to the original $87,000. In this example, she receives guarantees on her investment in addition as protection from the high costs associated with a nursing home stay. In addition, she would nevertheless have $125,000 in assets at her disposal.
Another example of these combination policies links long term care benefits to a single premium deferred annuity. This product begins as an annuity with either a lump sum place or structured deposits made over time. If no care is needed, the annuity gains interest functioning like any other fixed annuity. But if the owner/annuitant needs care in a nursing home or in other places, a formula will be used to determine the amount of the monthly assistance obtainable to the client. Taking the example used earlier, a healthy 65 year old woman who deposited $150,000 into this account would have the advantages of tax-deferred, safe growth in the annuity and approximately $4,700 a month of long term care benefits for 36 months. At an additional cost, a assistance rider additional to this policy would provide the $4,700 monthly assistance for her lifetime. On these types of policies, the additional assistance rider is usually a wise buy in order to acquire maximum guarantees.
The Long Term Care Annuity
The newest addition to the hybrid marketplace is the long term care annuity. This product also roles exactly like a fixed annuity, but has a long term care multiplier built into the policy. There is no premium rider attached to this medically underwritten annuity policy. Instead, a portion of the internal return in the contract is used to pay for the long term care assistance. Long term care coverage is calculated based on the amount of coverage chosen when the policy is purchased. The insurance company offers a payout of 200% or 300% of the aggregate policy value over two or three years after the annuity account value is depleted. For example, a policyholder with a $100,000 annuity who had chosen and aggregate assistance limit of 300% and a two year assistance factor would have an additional $200,000 obtainable for long term care expenses after the initial $100,000 policy value was depleted. The policy owner would use down the $100,000 annuity value over a two year period and then receive the additional $200,000 over a four year period or longer. In this example the contract pays $50,000 a year for a minimum of six years, but care will last longer if less assistance is needed. Again, if long term care is never needed the annuity value would be paid out lump sum to any named beneficiary.
These scenarios are only basic examples of how hybrid policies work. That is to say, the coverage will be different from person to person depending on age, health, gender, premiums and benefits requested. In order to get an accurate proposal, an illustration would be required from the insurance company. These inventive products can meet consumer demands and provide more guarantees by combining traditional long term care insurance with the advantages of life insurance or annuity policies. consequently, consumers who utilize hybrid policies can avoid self-insuring against extreme long term care related expenses and have the peace of mind associated with a comprehensive plan.