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Types Of Long-Term Care Insurance Policies & Which Is Best For You

Quick Answer

Long-Term Care Insurance is highly regulated, but premiums and underwriting criteria can vary dramatically between companies. While policies typically share core benefits, they are not all the same. Most insurance agents and financial advisors know very little about designing a policy because the industry and the product features evolve rapidly.

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Detailed Answer

Many people look into buying Long-Term Care Insurance each year. For some, this can be a very confusing process. LTC Insurance information can be hard to find, and the information can often feel overwhelming.

For example, you may know about Long-Term Care Insurance and the services it covers. But did you know there are two different types of Long-Term Care Insurance? 

These two types are traditional and hybrid policies. They can help address different needs and budgets.

LTC News staff consults with the top experts in the industry. These professionals have helped customers navigate Long-Term Care Insurance for decades. We’re here to help break down different types of LTC Insurance policies: traditional and hybrid. 

This article will discuss traditional and hybrid Long-Term Care Insurance policies. We’ll also cover the pros and cons of each policy type to help you understand which might be a good fit for your needs. 

Traditional Long-Term Care Insurance Policies

Long-Term Care Insurance started in the 1970s. The Firemen’s Fund sold the first nursing home care policy. Back then, Long-Term Care Insurance policies focused on nursing home care and coverage.

In the 1990s, many companies started including in-home care and assisted living facilities. Nowadays, policyholders can choose from several options for care. All traditional Long-Term Care Insurance policies offer comprehensive coverage. These policies cover most long-term health care services.

Traditional policies can be a good fit for those only looking for long-term care coverage. In fact, a majority of policyholders have traditional Long-Term Care Insurance policies. 

In the section below, we’ll discuss how traditional policies work and how much they cost. We’ll also discuss variations of traditional policies available today.

How Do Traditional Long-Term Care Insurance Policies Work?

Traditional Long-Term Care Insurance policies allow policyholders to customize their coverage. When you first start a policy, you’ll get to decide on the benefits within your policy. 

There are a few main areas where policyholders can customize LTC coverage:

  • How many benefits (amount in dollars) within the policy

  • The daily or monthly benefit limit

  • Initial lifetime benefit limit

Benefits shape the price and coverage offered by the policy. The more benefits you choose, the more your policy will cost. Those who choose the least amount of coverage and benefits will have lower premiums. 

Individuals can customize their benefits to match their coverage needs and budgets. Policyholders with smaller budgets can still receive coverage. However, they may have to select fewer benefits or lower daily or monthly benefit limits. 

For more information, check out our article that breaks down what Long-Term Care Insurance is and what it covers.

Add-ons & Customizations For Traditional Long-Term Care Insurance Policies

All types of Long-Term Care Insurance policies offer comprehensive coverage. But traditional policies have the most add-on options. Add-ons like insurance riders provide added benefits for an extra cost. 

Inflation riders are the most common option since they increase benefits annually. By law, companies are required to offer a 5% compound inflation rider. Many companies offer more inflation riders, like 1% or 3% compound inflation. 

To learn more about the options available to you, meet with a Long-Term Care Insurance specialist.

How Much Do Traditional Long-Term Care Insurance Policies Cost?

Traditional policies are the most affordable type of Long-Term Care Insurance. Individuals can customize their coverage to meet both their needs and budgets.

Generally, a traditional Long-Term Care Insurance policy bought in your 50s may cost between $1,000 – $2,000 a year. Premium prices depend on your benefits and health condition. 

For more information on costs, check out our article on factors that affect the cost of your Long-Term Care Insurance policy.

Traditional Long-Term Care Policies & Partnership Programs

Many private Long-Term Care Insurance companies offer partnership programs. Partnership programs are collaborations between private insurance, states, and federal Medicaid. 

These programs provide policyholders with dollar-for-dollar asset protection. Dollar-for-dollar asset protection insures assets for each dollar a policy pays out. 

Let’s say a policy pays $200,000 in benefits and the policyholder also has a home worth $200,000. Dollar-for-dollar asset protection will protect their home from the costs of long-term care. 

Partnership programs ensure policyholders can receive care and protect their estates. They allow individuals to qualify for Medicaid without exhausting their assets. Only traditional Long-Term Care Insurance policies are eligible for partnership programs.

Is A Traditional Long-Term Care Insurance Policy Right for You?

Traditional policies are the most affordable Long-Term Care Insurance option. Traditional policies also offer more flexibility and customization than other policy types. But how do you know if a traditional policy is right for you? 

A traditional Long-Term Care Insurance policy may be right for you if:

  • You’re only interested in long-term care coverage.

  • You want affordable, comprehensive coverage and care.

  • You need to or prefer to pay for coverage with an annual, semi-annual, quarterly, or monthly premium (as opposed to a one-time, lump-sum premium).

  • You have relatively good health.

  • You’re interested in customizing your policy.

  • You’re interested in the asset protection offered by the partnership program.

Hybrid Long-Term Care Insurance Policies

The other type of Long-Term Care Insurance is a hybrid policy. Hybrid policies may also be called combination, asset-based, or linked benefit policies. 

Hybrid LTC Insurance policies combine life insurance with long-term health care. These add long-term health care riders or benefits to life insurance policies.

Hybrid policies’ death benefit may address concerns around spending money on unused coverage. Beneficiaries will receive a death benefit for any money leftover within a policy. 

There are a few types of hybrid Long-Term Care Insurance policies. In the sections below, we’ll discuss these policies and how much they cost.

Life Insurance With A Long-Term Care Insurance Rider

Most hybrid plans are life insurance policies with LTC Insurance riders. These policies prioritize life insurance. They add a federally qualified Long-Term Care Insurance rider for care. 

These policies use death benefit money to pay for Long-Term Care Insurance coverage. Policyholders will not receive long-term care benefits when their death benefits run out. 

Death benefit money often lasts anywhere from two to five years. It’s unlikely that a policy’s LTC Insurance benefits will run out. Policyholders can choose larger death benefit amounts if this is a concern. The greater the amount, the longer benefits will last.

Life Insurance With Long-Term Care Insurance Benefits

This type of hybrid policy combines life insurance and Long-Term Care Insurance into one policy. This policy type maximizes the Long-Term Care Insurance benefit. The death benefits are lower and used as secondary preventive measures.

Like other hybrid policies, these policies use death benefit money first to pay for care. The difference is these policies include extra Long-Term Care Insurance benefits. These extra benefits kick in when the death benefit money runs out. 

The death benefit money typically lasts for two to five years. The extra LTC Insurance benefits can last for another two to five years. In total, policyholders with these hybrid policies can receive coverage for up to ten years or more.

Other Hybrid Policy Options

Most hybrid Long-Term Care Insurance policies are similar to those discussed above. But there are a few niche hybrid policies that may differ. 

For example, one company offers unlimited, or lifetime, Long-Term Care Insurance benefits. Other companies may offer cash policies that pay out all benefits regardless of the cost.

If you’re interested in niche or specialized hybrid policies, a Long-Term Care Insurance specialist should be able to help. These specialists are highly trained professionals. They can answer any questions you may have about hybrid LTC Insurance policies. 

How Much Do Hybrid Long-Term Care Insurance Policies Cost?

How much you’ll pay for a hybrid policy depends on the type of hybrid policy you buy and how many benefits you choose. 

Hybrid policies are more expensive than traditional Long-Term Care Insurance. This is because they combine two different types of insurance into one plan. 

Beneficiaries receive any money leftover within the policy no matter what. Insurance companies may consider this a higher risk. So, they charge more for hybrid policies than traditional ones. 

Policyholders typically pay for hybrid policies upfront with one premium payment. But there are also options to pay for five to ten years. Upfront premiums can be anywhere from $60,000 – $200,000 or more.

Fortunately, hybrid policy rates are locked into a contract regardless of how they’re paid for. This means hybrid premiums cannot increase. Traditional LTC Insurance policies may be at risk of regulated premium increases.

RELATED: Will Long-Term Care Insurance Premiums Increase?

In most cases, people will pay more for hybrid policies than traditional ones. However, the primary advantage of hybrid policies is the death benefit. 

Hybrid policies give people peace of mind about stable premiums and unused benefits. For some individuals, the perks of hybrid policies justify the extra cost.

Is A Hybrid Policy Right for You?

Hybrid policies have both advantages and disadvantages. Ultimately it comes down to budget and personal preference. 

A hybrid Long-Term Care Insurance policy may be right for you if:

  • You want your beneficiaries to receive a death benefit.

  • You’re interested in both life insurance and Long-Term Care Insurance.

  • You can afford a large upfront premium.

  • You want to avoid any chance of a premium increase.

  • You don’t qualify for a traditional Long-Term Care Insurance policy.

  • You have an existing life insurance policy or annuity to convert through a 1035 tax-free exchange.

Other Types Of Coverage & Benefits

Now that we’ve broken down the two types of Long-Term Care Insurance, let’s discuss related types of coverage and benefits.

There are four types of related insurance: 

  • Short-term care

  • Life insurance with a chronic illness rider

  • Disability insurance

  • Group policies. 

In this section, we’ll discuss these types of coverage. We’ll also talk about why they’re not replacements for regular Long-Term Care Insurance.

Short-Term Care Insurance

Short-term care insurance offers comprehensive care similar to Long-Term Care Insurance. The primary difference is that short-term care insurance only covers individuals for a shorter period of time. Usually, it provides one year of home care and one year of facility care. 

As the name suggests, short-term care insurance does not provide long-term care. Short-term care insurance is not a type of Long-Term Care Insurance. It is not a substitute for Long-Term Care Insurance and doesn’t meet the same federal guidelines. But short-term care insurance can still be helpful when other options aren’t available.

What Is Short-Term Care Insurance?

Short-term care insurance provides comprehensive skilled or custodial care for up to two years. Benefits and coverage from a short-term policy work similarly to Long-Term Care Insurance. However, there are a few notable differences.

Short-term policies are often cash indemnity plans. Cash indemnity plans pay a predetermined amount regardless of the cost of needed services. This amount is paid out when you meet the benefit trigger.

When Could You Use Short-Term Care Insurance?

Ideally, if you need long-term health care, you’d buy a Long-Term Care Insurance policy. But not everyone has that option. 

Older individuals may be uninsurable according to standard Long-Term Care Insurance underwriting procedures. Those with health complications often face similar challenges. In other cases, Long-Term Care Insurance may not fit into an individual’s budget.

This is where short-term care insurance comes in. Short-term care insurance has more lenient underwriting standards than Long-Term Care Insurance. Short-term care insurance also covers larger age brackets and individuals with declining health.

Short-term care insurance is also commonly used to supplement Long-Term Care Insurance coverage. Many individuals with Long-Term Care Insurance policies have elimination periods, sometimes called waiting periods, that delay benefits. 

These elimination periods usually last for 90 days but can sometimes last as long as six months. During this time, policyholders are responsible for costs of care. Short-term care insurance can provide coverage at a lower cost during those one-time periods.

RELATED: What Is Short-Term Care Insurance?

Life Insurance Policies With A Chronic Illness Rider

Life insurance policies with chronic illness riders provide life insurance to individuals. The chronic illness rider component provides terminally ill individuals with long-term care services. 

But there’s a catch — these policies do not meet federal guidelines for Long-Term Care Insurance. Chronic illness riders may lack consumer protections and tax benefits. Only federally qualified Long-Term Care Insurance policies offer these perks. 

Many chronic illness rider policies do not have regulated benefit triggers. Benefit triggers determine when an individual becomes eligible for Long-Term Care Insurance benefits. 

In these policies, individuals may only trigger benefits if their condition is terminal. A terminal condition is one that an individual will not recover from. 

Most people who need long-term health care do not have a terminal condition—and may never. This can block policyholders from accessing long-term care benefits, unlike federally qualified policies.

Life insurance policies with chronic illness riders are not Long-Term Care Insurance policies. 

Chronic illness rider policies will not cover comprehensive long-term health care services. It’s unlawful for an insurance professional or company to sell chronic illness riders as Long-Term Care Insurance. 

Each chronic illness rider will have a disclaimer on the first page of the policy. These disclaimers should say it’s not intended to be Long-Term Care Insurance.

Disability Insurance

Some people may confuse disability insurance with Long-Term Care Insurance. However, disability insurance doesn’t directly cover long-term care costs.

Disability insurance provides individuals with supplemental income. Individuals qualify for coverage when they cannot work due to sickness or disability. 

Employers may offer comprehensive private disability insurance plans. There are also options to get disability insurance through the social security system. There are long-term and short-term options available for disability insurance. 

Unlike disability insurance, Long-Term Care Insurance does not supplement income. In fact, buyers use some of their income each month to pay for coverage. Then your LTC Insurance pays for the care you need when you need it. 

The official U.S. disability insurance site has more information about disability insurance.

Group Or Employer Plans

Some employers may also offer group Long-Term Care Insurance policies. These plans cover many employees under one plan. 

Individuals pay into the policy the same way as they would for traditional LTC Insurance. Group policies often have more lenient underwriting requirements to help everyone qualify. 

Group plans are technically Long-Term Care Insurance policies. However, they’re not the best option. In fact, most Long-Term Care Insurance specialists discourage joining a group policy.

Often, individual policies offer personalized coverage at a lower cost. Group policies often have reduced benefits at a higher cost. It can be challenging to personalize group policies. Employers decide the coverage offered since their employees are on the same plan. 

However, a group policy could make sense if you have pre-existing health problems. They also make sense if your employer pays a significant part of the premium.

Determining The Right Long-Term Care Insurance Policy Type For You 

As we’ve discussed, the best Long-Term Care Insurance policy for you depends on your needs and budget. Fortunately, you can customize your coverage to fit your needs.

There are two types of Long-Term Care Insurance: traditional and hybrid policies. 

Traditional Long-Term Care Insurance policies provide comprehensive coverage for long-term health care services. These policies can be affordable. They offer more customization options than other LTC insurance types. These are also the only policies eligible for the partnership program. 

Hybrid policies combine both life insurance and Long-Term Care Insurance. These policies tend to be more expensive but guarantee a death benefit. 

Short-term care insurance is not a type of Long-Term Care Insurance. However, it provides similar coverage and benefits for up to a year (sometimes two years). This option is great for covering elimination periods. It’s also useful for those who cannot qualify for regular Long-Term Care Insurance. 

Both traditional and hybrid Long-Term Care Insurance policies have their advantages and disadvantages. It’s up to you, the policyholder, to decide which one fits your needs and budget best.

If you’re still unsure which policy is best for you, you may want to meet with a Long-Term Care Insurance specialist. These are highly-trained professionals at the top in their field. They’ll match you with options that best fit your goals, needs, and budget.

LTC News is here to answer commonly asked questions as you continue to explore Long-Term Care Insurance.

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