Long Term Care Insurance: Hybrids and Traditional

Whaleguin-hybrid

Hybrids and Traditional Long Term Care Insurance:  which is for you?

If there is one thing that gets my goat about insurance agents, it is agents who sell products without  adequately explaining them to the client!  So let’s address whether a Hybrid is right for you.

Hybrid life/long term care contracts can be a wonderful product for the right client profile.  Every buyer is concerned about the question “what if I don’t use this?”  (This is a fallacious – really?  Who buys insurance hoping they use it?!?  But for some reason on THIS product people are always worried they won’t use it…).  So when a sales person says, “Well you can buy this hybrid that pays for long term care costs and if you never need long term care it pays out a death benefit” – clients get excited.  This is the best of both worlds!  Why wouldn’t I want this product?!?

True – it can be the best of both worlds.  You will either need long term care and the contract will pay or you will die without care and the contract will pay.  Some will even pay both ways: if you need care for a short window and then die, there is still some small death pay out.

What is often left out of this simplistic tale is that the pay-out for long term care costs is often NOT growing over time to keep up with the costs of care.  Example:  if you buy and it pays out $4,000/month for care today, but don’t need it for 25 years, the hybrid will still pay $4,000/month for care in 25 years when the cost of care has now grown from $5,000/month to $15,000/month.  What looked like enough  money at the start is clearly not enough at the point of need.  Clients can still go bankrupt paying for care if they must pay the lion’s share of the cost of care from their own pocket.

To be fair, a very few of the hybrids will allow the long term care benefit to grow over time.  Typically if you get that feature, then the death payout is cut dramatically.  You just don’t get to have your cake and eat it too on these things.  So, how do you decide?

  • Know why you are buying the product. Think of it like buying a vehicle:  if you need a truck and you bought a sports car…as nice as the car it is, it will not meet your needs.  So know your need first.  If, for instance, you truly need it to cover the cost of care and the death payout is secondary, then either you need to do your homework and get the hybrid policy that grows in value over time….or it is not right for you at all – you need a traditional policy.
  • Know your asset values and how you are willing to use them. Folks with higher net worth (say 700K or more) can probably absorb the lion’s share of the cost of care.  So they can afford to get a policy that does not have a growth factor attached to the long term care payout.  Folks with less net worth will still run the risk of going bankrupt if they buy incorrectly.  You might also want to weigh how important leaving a financial legacy is to you.  Folks who have a high risk of being in care for a long haul, may want a traditional policy anyway as this will protect the assets for inheritance.  The hybrid – if you have a long run of care – will have very little or no death payout to leave as inheritance.
  • Know your overall financial strategy. Your financial products (life insurance, long term care insurance, disability insurance, annuities, mortgages, etc.) should work together to meet your financial goals.  There is no one-size-fits-all solution.  You should work with capable, seasoned advisors to be certain you are identifying and meeting your goals with these types of products.

LINKS ABOUT BUYING LONG TERM CARE INSURANCE

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