Long-term care vs. hybrid long-term care: Which is better, according to experts?
As you age, your need for assistance, whether it be at home or in a nursing home or assisted living facility, increases.
Given the prevalence of long-term care services being required, it's no surprise that long-term care insurance has become a staple in many financial plans. It provides coverage for a broad range of healthcare services, from skilled nursing care to therapies to assistance with activities of daily living (ADLs).
Long-term care insurance has been available for decades, but hybrid long-term care policies have grown more popular, too. Both traditional and hybrid long-term care policies have pros and cons, and we spoke with three insurance experts to help you determine which could be better for your individual circumstances.
See how much a long-term insurance plan could cost you here.
Long-term care vs. hybrid long-term care insurance: Which is better?
To more accurately determine which of these insurance types could be better for you, it first helps to understand what they are and how each operates.
Traditional long-term care insurance is a standalone policy that covers a wide range of services, including skilled medical care and supportive services in nursing homes, community-based facilities, or even in your own home.
"Traditional long-term care insurance was typically an insurance policy that is, let's say, a one-trick pony," says Eric Mangold, the founder of Argosy Wealth Management. "Meaning that it was a policy that was designed to help pay for some or all of the costs associated with long-term care. But there were usually some underlying disadvantages."
Traditional long-term care insurance operates under a use-it-or-lose-it system, similar to your home or auto insurance. If you never need to file a claim, you'll never recoup any of the premiums you paid over the years.
Another downside to these policies is that premiums can — and often do — increase over the life of the policy. So, while you might choose a policy based on what you can afford, you could end up paying far more.
Hybrid long-term insurance, on the other hand, ties the benefits of life insurance and long-term care insurance together. These plans are more expensive than traditional long-term care, typically requiring a large lump-sum payment or installment payments paid over a shorter period (rather than the full policy term). But in return, you get a long-term care policy combined with life insurance.
"Since they were built on a life insurance foundation, if you never needed care, if you never used it and passed away, your beneficiaries would receive the death benefit," says Mangold.
Some hybrid long-term care insurance policies even offer a guaranteed death benefit, meaning your beneficiaries could still receive a small sum (often 10% of the total death benefit) when you die if you've already utilized your long-term care coverage.
Compare your long-term and hybrid care insurance insurance options here to learn more.
When long-term care insurance could be better
Because traditional long-term care insurance policies focus on one specific service, they may have more robust coverage options than you could get with a hybrid policy. For that reason, they may be a good option if long-term care coverage is your only priority.
"Traditional long-term care insurance is best for those who want dedicated, robust coverage for extended care needs later in life," says Brandy Burch, the CEO of Benefitbay, an insurance company.
Additionally, because traditional policies tend to be cheaper than hybrid ones, they're also a good option for policyholders who are on a budget but who still want protection in case their health declines and they need long-term care.
"It also works well for those who can budget for annual premiums and are focused on securing high-quality care rather than building wealth transfer opportunities through their insurance," says Burch.
It's especially ideal for those who are on a budget but are okay with the use-it-or-lose-it nature of traditional long-term care insurance.
When hybrid long-term care insurance could be better
Hybrid long-term care insurance is a better option for those who want the protection that long-term care coverage offers, but who don't want to feel like they're wasting their premiums if they don't end up needing care services during their lifetime.
"You could tap into it for LTC expenses if you need it, or else it can behave like life insurance or an annuity that your heirs or you still benefit from," says Lily Vittayarukskul, the CEO and co-founder of the long-term care insurance planning company Waterlily.
The stable premiums on hybrid policies are a major advantage. But because they tend to be more expensive than traditional policies, according to the American Association for Long-Term Care Insurance, they're often better for those who can afford the large upfront cost.
"Hybrid policies tend to have more stable premiums, which can help with budgeting, but the trade-off is often a higher cost for the same LTC benefit level than you'd find with a dedicated LTC policy," says Vittayarukskul.
How to choose your long-term care insurance policy
If you're in the market for long-term care insurance, it's important to compare your options and choose the right policy for your situation. Here are some tips to help you get started:
- Consider the best type of policy for your situation: It's important to fit your long-term care policy into your overall financial plan, so be sure to consider your budget, health status, and other insurance coverages. A financial planner can advise you on the best type of policy for your situation.
- Get multiple quotes: Premiums may vary significantly across different insurers and different types of long-term care policies. Get quotes from several providers.
- Read the fine print: While cost is important, it's not everything. Other factors to consider and compare include benefit triggers, coverage limits, policy duration, elimination periods, types of care covered, coverage of pre-existing conditions and more.
- Explore other options: It's possible to be denied long-term care insurance based on your age or health status. In that case, you can explore your other options, including life insurance riders, health savings accounts, annuities and more.
The bottom line
Many seniors today will need long-term care services at some point in their lives, but many can't afford the high cost out of pocket. That's where long-term care insurance comes in. While traditional long-term care policies were the norm for decades, hybrid policies, which offer a death benefit if you don't use your entire long-term care coverage limit, have become increasingly popular. There's no type of policy that's right for everyone. Instead, the policy type that's right for you depends on your age, health status, budget, and other key factors. So be sure to explore both to determine which is most applicable.
Have more questions? Learn more about your long-term care insurance options here.
