Traditional Long Term Care Insurance vs. Hybrid Policies
The need for long term care is on the rise and so does the cost of different services. Presently, it is estimated that 7 out of 10 Individuals will require long term care once they go beyond 65. More so, about 40% of individuals between the ages of 18 and 64 will also be administered care.
Meanwhile, cost of care is on a continuous incline too. As per Genworth’s 2013 Cost of Survey, the median annual cost of nursing homes has hiked up from $67,527 to $83,950 in just a span of 5 years with an increasing rate of 24%. Meanwhile, within a year, from 2012-2013, Genworth also found that the increase in rates were at 4%
Apart from nursing home care, other care settings have also increased. Median annual cost of assisted living facility has inclined by 23% in a span of 5 years. Meanwhile, in-home care services such from homemakers and home health aides have also increased, though not as dramatically as the other settings.
Given the rising demand and rates of long term care, more and more individuals are feeling the urgency to get covered for this future need. The most obvious option would be to get covered with long term care insurance.
Traditional Long Term Care Insurance Policy
As it name implies, long term care insurance is a policy designed to cover the long term care expenses of the policyholder. However, most people are anxious about purchasing this plan because of its high cost as well as the possibility of not using it at all.
However, one should not negate what makes long term care insurance beneficial. First off, it tackles long term care needs head on. Meaning, your premiums will be used to provide you with comprehensive care coverage. If you’re a long term care insurance policy holder, you have the freedom to choose how and where you will receive care. More so, you also have the say with regards to how long your policy will be in effect. It can last for a few years or even for the rest of your life.
Meanwhile, premiums can hike up anytime. That’s the common fear of most people. They are nervous that they might need to drop the policy altogether if they can no longer afford the rates should they go up. More so, other people argue that they will just waste their money on a policy if they end up not using it.
Because of this concern, some life insurance companies combine the features of long term care insurance with life insurance or fixed annuity.
Hybrid Policies
Hybrid policies were birthed in order to give the people a cost-effective way of covering themselves against long term care expenses while benefiting from life insurance or fixed annuity. Typically, they incorporate long term care benefits through a rider.
Annuities work by providing you a steady stream of income during your retirement. Now, you can build a pool within it for long term care needs by paying for an additional rider which can cost by up to 3% per year. If you have $100,000 in an annuity today, that amount you can use for long term care can be double that amount in 7 years if you pay the rider.
On the other hand, long term care benefits through life insurance are also incorporated into the policy through a rider. Once you have that add-on, you can tap your death benefit to use for long term care. What’s left of the benefit when you die will be awarded to your beneficiaries.
Hybrid policies can seem cost-effective, but it is not right for every individual. Though long term care components can be incorporated in them, the coverage is still not as comprehensive as that of a traditional policy. More so, remember that you have to pay an additional cost for the riders. Though their price is relatively smaller than an individual long term care insurance plan, its coverage is not as wide as a stand-alone long term care insurance policy.
For instance, long term care insurance can have a return of premium rider which assures that a portion of the premium would be returned if benefits are not claimed over a certain period of time, say ten years. More so, long term care insurance policy can allow you to qualify for Medicaid benefits without spending down your assets if you are under a Partnership Program. Hybrid products don’t have these features.
Which one is for you?
That depends on your needs and financial capabilities. For instance, if you still need life insurance by the time you need long term care coverage, then a hybrid product can be cost-effective for you. However, if you don’t have a need for life insurance at all, a traditional product is a better option.
Nothing beats the wide range of coverage that a traditional long term care can provide. Its cost can be intimidating at first glance, however, what you pay for its premiums is smaller as opposed to what you will pay out-of-pocket if you’re uninsured. To get the best deal, choose a coverage that your financial capability can sustain. Remember that the best long term care insurance is not the most expensive, but the one best suited for your requirements.