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NC and SC Estate Planning and Elder Law Firm

Thursday, March 31, 2016

Hybrid Long-Term Care Policies

How can I plan for long-term care?

Given the fact that people are living longer, the cost of medical coverage during their older years is a matter for individuals to consider as part of their estate planning. Long-term care for nursing home patients can cost as much as $90,000 per year, according to some estimates so long stays can easily deplete a retiree's estate.

What is a hybrid life insurance policy?

Many individuals have traditionally planned for long-term care by purchasing stand alone insurance policies. However, these plans are expensive and it is common for premium costs to rise. In response to these shortcomings, financial and estate planning professionals are informing their clients of a relatively new option -- hybrid policies. Hybrid policies are essentially universal life insurance policies or fixed annuities that are bundled with coverage for long-term care. These policies provide for medical care by retaining a certain amount of cash which can then be used to pay for long-term care benefits.

For example, in a well-designed hybrid life plan, an individual can pay a single premium of $100,000 and be entitled to $400,000 in payments for long-term care after a certain period. These products not only provide life insurance and long-term care funding, but can also be tapped for other reasons (depending on the circumstances) and passed on to heirs. However, most hybrid plans have "surrender periods" that put the money off limits for a certain number of years and impose a penalty if funds are withdrawn during that time.

Who Can Benefit from Hybrid Polices?

According to the insurance industry group Limra, sales of hybrid insurance products have risen dramatically since 2008 to more than $2.4 billion in 2015. Stand alone long-term policies, on the other hand, account for $300 million in annual sales. Moreover, the number of insurers offering hybrid products is limited because of higher costs associated with these policies.

Hybrid insurance is not for everyone, especially individuals who do not have large assets, because insurance companies get a lot of money upfront, which they hold onto and manage. The surrender fees are designed to make it difficult to withdraw funds. Some advisors recommend these policies for clients with half a million to $2 million dollars in assets. This is because individuals above this threshold may be able to self-fund their long-term care, while those who fall below that asset level may be able to "spend down" their assets in order to qualify for Medicaid.

In the final analysis, hybrid plans are complicated and, require the assistance of an attorney with expertise in estate planning and long-term care.


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