Taxation & Estate Planning

Hybrid Long Term Care Insurance

By Deirdre R. Wheatley-Liss, Esq.

The appeal of a hybrid car is more than greater bang for your buck - it is about making an investment you feel good about. When it comes to Long Term Care insurance, the only people who seem to feel good about the investment are those who have been caregivers, and have seen the devastating costs of spending every single penny of a person's savings (or at least down to the few last pennies) and it still not being enough to cover the costs of care. However, with teh US's aging population, many more families are going to find themselves in the position of caring for loved ones, and asking the question of: Where does the money come from?

Long Term Care Insurance may be a solution, but in many ways it has a bad reputation. The premiums seem very expensive, especially as the people looking at it tend to have just retired and are on a fixed income. Unscrupulous people have taken advantage of seniors with the product, tarring all long term care insurance professionals with the same suspicious brush. Another common thought is that if you never get sick, you just threw a lot of money down the drain.

A possible solution I was recently introduced to? Hybrid Long Term Care Insurance. The basic idea is that you take a lump sum of dollars and purchase Long Term Care Insurance. The dollars buy several things:

1. A total pot of greater dollars available to pay for long term care (a $100k investment might buy you $250k of long term care, depending on your age)
2. A death benefit greater then what you paid in that is "returned" to you heirs if you die and don't use the policy (A $100k investment might buy $200k in death benefity, depending on your age)
3. The ability to withdraw the lump sum you paid in at some point in the future if you need it (you get your $100k back)
4. A lump sum payment is a fixed investment - no need to pay ongoing premiums from your fixed income (you pay and "forget" it)

The cost? The loss of use of the lump sum and the growth on the lump sum unless you use the long term care benefits or the life insurance benefits.

The Street.com examined these hybrid polices in Hybrid Long-Term Care Might Be Right for You and highlighted some points to consider:

• You have significant liquid assets available. With a single premium payment ranging from $50,000 to $100,000, a hybrid policy is only for those with significant cash available that can be reallocated.
• You understand the risk to your portfolio. Once you have accepted that you may need care someday and that this care may be very expensive, the next step is to take a good look at what that will mean to your retirement portfolio.
• A stand-alone, long-term care policy is not an option. If you are not interested in paying premiums indefinitely on a policy you may never use, then the hybrid product -- with a death benefit built in -- may be an option.
• You have been planning to self-insure. If you haven't already recognized the financial risk of the cost of long-term care, you are not ready for this product.
• The ability to get something back for your premiums and retaining control of your money is important to you. You will, at minimum, get the use of your full premium either through long-term care benefits, a death benefit or by requesting a return of premium.
• Simplicity is important. While the long-term care portion of the policy contains the same framework of coverage as a stand-alone policy, there are fewer bells and whistles to add -- or to complicate the deal.

Full post as published by New Jersey Estate & Elder Planning Blog on June 22, 2008 (boomark / email).