Q&A: Should I Buy a Hybrid Long-Term Care Insurance Policy?

Question: I followed your advice and bought long-term care insurance last year when I was 49. I got a good price for a modest policy with a company I trust. But then you began recommending a hybrid plan combining life insurance with long-term care insurance. So I’ve been looking into that as a replacement for my current plan, but with all the pros and cons, I’m having a hard time deciding which one to get or whether to make the switch at all. Can you help?

Ric: First, let me explain to others what you're talking about.

Historically, we have said that you need to own long-term care insurance because the rising cost of health care is the primary cause of poverty among affluent and middle-class Americans in retirement. One in two Americans over the age of 65 will incur long-term care at some point in their life. If you had to spend $80,000 to $100,000 a year that you weren’t counting on, you might go broke. The least painful way of solving that problem is through insurance.

My book, The Truth About Money, first published in the 1990s, details how to shop for a policy, what features and benefits to look for and how to pay for the policy. But my new book, The Truth About Your Future, explains that far fewer Americans will need long-term care because of medical advances through technology. The younger you are, the less likely you’ll need it.

You’re only 50 now, so by the time you’re 80, science may have eliminated most, if not all, of the issues that currently send people into nursing homes. Also, the insurance industry has been severely challenged to sell long-term care policies profitably. Many carriers have quit the business, while others have sharply raised premiums or scaled back product features.

These reasons are why we have modified our advice. Instead of buying a standard policy that offers no refunds if you don’t file a claim, we now suggest you consider a hybrid policy. This combines long-term care insurance and life insurance, so if you don’t use the money for care, your heirs get a death benefit — providing some cost recovery. Some of these policies also offer refunds of some or all of the premiums you paid if you cancel the policy.

This advice is aimed at people who do not own long-term care insurance. You do, but you’ve owned it for only a year. So, shifting to a hybrid policy is an option to consider.

As you noted, there are pros and cons. For example, hybrid policies are more expensive than standard  policies in the early years. We would be glad to help you examine the policy you have and compare it to hybrid policies. If you’re going to make the shift, you need to make it soon.

Please note that partnership plans rules can vary by state so please seek the council of aprofessional before purchasing.