Cameron Huddleston is an award-winning journalist with nearly 20 years of experience writing about personal finance. She also is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. F.
Cameron Huddleston ContributorCameron Huddleston is an award-winning journalist with nearly 20 years of experience writing about personal finance. She also is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. F.
Written By Cameron Huddleston ContributorCameron Huddleston is an award-winning journalist with nearly 20 years of experience writing about personal finance. She also is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. F.
Cameron Huddleston ContributorCameron Huddleston is an award-winning journalist with nearly 20 years of experience writing about personal finance. She also is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. F.
Contributor Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
Les Masterson Deputy Editor, InsuranceLes Masterson is a deputy editor and insurance analyst at Forbes Advisor. He has been a journalist, reporter, editor and content creator for more than 25 years. He has covered insurance for a decade, including auto, home, life and health. Before cove.
| Deputy Editor, Insurance
Updated: Oct 27, 2023, 12:29pm
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There’s a good chance you’ll need long-term care as you age. But if you’re like many Americans, you likely don’t have a plan to pay for this sort of care.
The cost of long-term care (LTC) insurance can be a deterrent to getting coverage. “Traditional plans have a bad rap because there have been so many hikes in premiums,” says Matthew Sweeney, life and long-term care specialist with Coverage Inc. in Virginia. “When people hear ‘long-term care insurance,’ they say, ‘I’m not interested.’”
The idea of paying hefty premiums for long-term care insurance they might not need leaves a bad taste in people’s mouths. But there is an alternative to the traditional use-it-or-lose-it long-term care insurance: Hybrid life insurance products can pay for long-term care if there is a need, or a death benefit if the policy isn’t used to pay for care.
These policies can be a good way to hedge your bets: You’ll have the peace of mind that you have a source of money for long-term care, but if you don’t need it your beneficiaries will get a life insurance payout.
You may be increasingly concerned about how you will pay for long-term care if you need it. And often people don’t recognize the need for this sort of coverage because they underestimate the cost of care. And they mistakenly assume that Medicare or health insurance will cover long-term care.
Then there’s the added stress and burdens put on family members who often provide long-term care. Nearly half of Americans (47%) expect to take on a caregiving role in the next three years, according to a 2022 survey by Lincoln Financial Group. Yet only 16% say they are very familiar with the features and benefits of solutions that can help pay for long-term care.
Lincoln Financial’s survey also found that fewer than one in five Americans have begun planning for their own long-term care and only one in 10 have a plan for paying the potential costs.
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Medicare—the government health insurance program for adults age 65 and older—will pay for short stays in skilled nursing facilities for rehabilitation or therapy services after a hospital stay. It will not pay for long-term care, which is assistance with what are called the “activities of daily living”:
This is the type of care that someone who is experiencing physical or mental decline might need. It can be provided at home, through community-based services such as adult day care or in a facility.
Medicaid—the joint state and federal health care program—will cover the cost of long-term care at home and in skilled nursing facilities. It currently is the primary payer in the nation for long-term care services. However, you must have limited income and assets to qualify for Medicaid. Income requirements vary by state, but, typically, your assets (excluding your home and one car) can’t exceed $2,000 as an individual or $3,000 as a married couple.
Long-term care insurance can be used to pay for assistance when the policyholder can’t perform a certain number of the six activities of daily living (ADLs) or has cognitive impairment. The long-term care policy will outline the number of ADLs needed to qualify for benefits, such as two.
It can cover the cost of care at home, in adult day care, in assisted living facilities and skilled nursing facilities.
Most long-term care policies also will cover modifications to your home to make it easier to remain there to receive care.
The amount of coverage a policy will provide will depend on the benefit period and benefit amount you choose. A typical plan might pay out $3,500 to $5,000 a month in benefits. The maximum benefit is then based on the monthly benefit amount and benefit period. For example, a long-term care policy with a $5,000 monthly benefit and a three-year benefit period would have a maximum benefit of $180,000.
Depending on how long you need care and how much it costs, long-term care insurance can help cover some or even all of the cost of care.
But traditional long-term care policies are a use-it-or-lose it proposition. If you don’t make a claim for LTC benefits, the policy pays out nothing.
Hybrid life insurance policies that include a long-term care benefit can alleviate the concern about paying for long-term care insurance that you may never use. These combination life insurance or hybrid life insurance policies can be used to pay for long-term care expenses and will pay a death benefit when the insured person dies.
Life insurance policies that include long-term care benefits are permanent life insurance policies, not term life policies. There are a few different types of these long-term care hybrid products.
A linked benefit insurance policy is a true hybrid policy that links a life insurance policy with a long-term care policy. Typically, the long-term care benefit amount is equal to about five times the premium you pay. For example, a healthy 55-year-old man who made a $100,000 lump sum premium payment could get long-term care benefits worth nearly $523,000. The death benefit would be $174,000, based on a quote provided by Newman Long Term Care.
According to the American Association for Long-Term Care Insurance, 84% of long-term care protection purchased in 2019 was linked-benefit coverage. Just 16% was stand-alone long-term care insurance.
When you buy life insurance, you may have the option to add a long-term care rider (it can’t be added later). Generally, these long-term care benefits are not as robust as with a traditional long-term care policy or linked-benefit policy, says Craig Roers, head of marketing for Newman Long Term Care.
“This approach might be good for someone where life insurance is more of a concern than long-term care insurance, as the long-term care is sometimes a ‘by the way,’” he says.
Both of these products will pay out through reimbursement of the actual cost of care or an indemnity model that pays a certain cash benefit regardless of the actual cost of care. When you use the long-term care benefit, the death benefit is reduced. However, most of these policies still offer a death benefit of $15,000 to $20,000 if you use all of the coverage for long-term care.
By adding a critical illness or chronic illness rider when you buy life insurance, you can later take money from your own death benefit to pay for care if you have a chronic illness that will last for the rest of your life.
“It would not cover something like extended care needed due to a hip replacement, but true long-term care insurance would,” Roers points out. These riders use the indemnity model and pay you a lump sum if you develop an illness that qualifies.
In addition to paying a death benefit if long-term care isn’t needed, hybrid life insurance products have other features that can make them more attractive than traditional long-term care insurance.
The premium is guaranteed on hybrid products and won’t increase over time. This appeals to consumers because premium increases (sometimes very high) were common with traditional long-term care insurance policies in the past. Now insurers are able to price long-term care policies more accurately, so rate increases are less likely, according to the National Association of Insurance Commissioners.
Hybrid life insurance/long-term care products offer flexible premium payment options. You can make one lump-sum payment or pay premiums over time. Traditional long-term care policies typically don’t offer a single premium payment option.
It can be easier to qualify for coverage because the underwriting can be less stringent with a hybrid policy than a traditional long-term care policy, Voegele says.
A hybrid policy might allow you to pay a family member who provides care for you. If it uses an indemnity model that pays cash rather than reimbursement for the actual cost of care, you could use that cash to pay a family caregiver. This isn’t an option with traditional long-term care policies, which pay claims by reimbursement only.
Permanent life insurance policies build cash value, which you can tap to cover expenses other than long-term care. Stand-alone long-term care insurance policies don’t have cash value.
A hybrid policy may not make sense for you in other aspects.
If your top concern is long-term care, you’ll get more coverage for your money with a stand-alone long-term care policy. And it will be cheaper than a hybrid policy because you’re not paying for the life insurance benefit.
The period you must wait before benefits kick in is typically 90 days with hybrid policies. Traditional LTC insurance policies can have elimination periods that range from 30 days to two years, he says. A longer period can lower the premium.
Long-term care payouts can substantially reduce the death benefit of a hybrid policy. If you bought the policy because you have loved ones who will need the death benefit, that benefit won’t be there if you tap all the money for your care.
Hybrid policies don’t always include an inflation protection option, Roers says. This option increases the cost of a policy, but it adjusts the value of the policy to increase with the rising cost of long-term care.
The tax benefits of hybrid policies might not be as generous. Both hybrid and traditional long-term care insurance payouts are tax-free. However, if you’re self-employed, you can deduct the cost of long-term care insurance premiums. With a hybrid policy, you can’t deduct the full premium—only the portion that goes toward long-term care coverage, Roers says.
Traditional long-term care policies often are eligible to be part of state Long Term Care Partnership Programs. With a partnership LTC policy, you don’t have to spend down all of your assets to qualify for Medicaid. Hybrid policies are not eligible for these partnership programs, Roers says.
Sellers of hybrid life insurance/LTC policies include:
When applying for a policy, you’ll have to fill out a questionnaire about your health and have a phone or face-to-face interview. The insurer might check your medical records and prescription history, and might require a life insurance medical exam.
If your health is an issue, you might be able to buy an annuity with a long-term care rider instead.
You’ll pay more for long-term care coverage with a hybrid policy than with a stand-alone long-term care policy. However, hybrid policies can be cheaper for women.
Here’s a look at the cost for three different types of policies offered by Thrivent:
Let’s take a look at different long-term care insurance options offered by Thrivent.
