Introduction
Planning for the future often involves considering how we’ll manage potential health challenges and the costs associated with long-term care. While Medicare provides some assistance, it doesn’t cover the full range of elder care needs. This is where long-term care insurance comes in. Policies exist in two main forms: traditional and hybrid. Understanding the nuances of each, including the costs and benefits, will better inform your financial and care plans.
How Traditional and Hybrid Long-Term Care Insurance Compare
Essentially, long-term care insurance helps cover expenses that Medicare does not, such as assisted living, nursing home care, and in-home assistance with activities like bathing, dressing, and eating. However, the policies are not cheap, with premiums that often cost several thousand dollars annually. Traditional long-term care policies operate on a ‘use-it-or-lose-it’ basis, which is why hybrid policies have become popular.
- Traditional Policies: These policies function much like other insurance policies. You pay regular premiums, and the policy helps cover costs if you need care.
- Hybrid Policies: These combine long-term care coverage with a life insurance benefit. If you don’t use the care benefits, the heirs receive a death benefit. While they provide an additional benefit, hybrid policies are generally more expensive.
What Traditional Coverage Includes
Traditional long-term care insurance often covers a range of services and care options. These policies typically include:
- Nursing home care
- Assisted living facilities
- In-home care
- Adult daycare
Coverage details, the benefit duration, and additional features like inflation protection vary across policies.
How Much Traditional Policies Cost by Age
The cost of traditional long-term care insurance depends on factors like age, health, and the state of residence. Premiums tend to be higher for women, as they live longer and use such services more often. Here is a snapshot of what can be expected:
*Note: The initial policy benefit equals $165,000. The cheapest premium has no inflation rider, while the most expensive includes an inflation rider that grows benefits 5% annually.
What to Know Before Buying a Traditional Policy
Before committing to a traditional policy, there are several factors to take into account:
- Medical Underwriting: Insurers review your health history and may need a medical exam to assess risk. Having a preexisting condition doesn’t automatically disqualify you, but it may affect coverage.
- Cash Value: Unlike whole life insurance, traditional policies typically have no cash value.
- Use-It-or-Lose-It: If you never need long-term care, you don’t receive any benefits.
- Premium Increases: Premiums can increase over time due to rising healthcare costs and changes in the insurer’s pricing structure.
What Hybrid Coverage Includes
Hybrid long-term care policies offer a blend of long-term care coverage and either life insurance or annuity options, providing additional flexibility. These policies generally offer:
- Long-term care benefits: The policy pays for covered care services when needed.
- Death Benefit: Coverage that provides a payout to heirs if long-term care benefits are not fully used.
How Much Hybrid Policies Cost by Age
Hybrid policies vary significantly in price because of the features and insurers involved. Key pricing factors:
*Note: Hybrid policy costs reflect averages for single adults age 55 and are based on pricing from two companies. Death benefits shown reflect the maximum available if no long-term care benefits are used and are typically reduced as long-term care benefits are paid.
What to Know Before Buying a Hybrid Policy
- Application Process: Similar to traditional coverage; may require health questions and review of medical records. Preexisting conditions may not be covered or could increase the cost.
- Payment Options: Many plans offer a lump sum payment option or installments, which can prevent future premium increases.
- Cash Value: Hybrid plans usually accumulate cash value over time, with modest annual growth.
Alternative options to prepare for long-term care costs are Health Savings Accounts (HSAs), annuities with long-term care riders, personal savings, and home equity.
The bottom line
Long-term care insurance provides peace of mind and protects savings from potential care costs. The most suitable plan depends on your estate planning goals. Considering the assistance of a financial planner or insurance agent is a good idea. Remember to compare multiple quotes and verify each company’s financial standing.
