Hi, I’m Collin Terry, Benefits Planner for Krause Financial Services. Today, I’m going to give you an introduction to Hybrid Long-Term care Insurance.
A Hybrid Long-Term Care Insurance policy consists of a life insurance or annuity contract with long-term care benefits attached to the policy. Like most life insurance or annuity contracts, these policies contain a cash value that continues to grow up on a deferred basis. The best part is that if the funds are used for long-term care expenses, the growth is not taxable. And lastly, if the initial investment is not used, the amount your client put into the policy will be returned to the beneficiaries.
Like a traditional policy, a hybrid policy provides a certain amount of benefits for a certain period of time. The difference is how the benefits are determined.
Hybrid policies may also be referred to as asset-based policies because the benefits provided are determined based on the premium amount, whereas in a traditional policy, the premium would instead be determined based on the benefits desired. The more the owner invests in the policy, the greater their monthly benefit will be.
Hybrid policies are typically funded with a single premium, though annual premiums are also an option if your client is funding a life insurance-based policy. In addition to being funded with cash, these policies can be funded with IRAs or an existing annuity.
If funding with a premium, the premium will always be guaranteed, meaning the owner does not have to worry about a future increase in the price of the policy.
Funding the policy with an existing annuity is a good option since the funds can be transferred via Section 1035 Tax-Free Exchange. This means moving the existing annuity to the policy is a tax-free event, and any current gain realized on the policy plus any future gain would be collected tax-free if used for long-term care benefits.
The base benefit period of the hybrid policy is 36 months, though Continuation of Benefits riders are available for either a certain amount of time or for the lifetime of the owner, depending on the specific contract provisions.
Additionally, the annuity-based hybrid policies require much less underwriting than traditional policies, meaning your client is more likely to be approved if they are in questionable health.
Hybrid Long-Term Care Insurance policies are a great option for clients looking to pre-plan, especially if they already own an existing annuity with deferred gain. Additionally, it may be more appropriate for clients that would be unable to pass the underwriting for a traditional policy.
If you have seen our Traditional Long-Term Care Insurance video, you may have realized there are a number of similarities between these two types of Long-Term Care Insurance. However, there are some important differences.
One important difference is the cash value. If you have a couple and one spouse is in need of care and is looking to become Medicaid eligible, while the other spouse is still in good health and plans to continue to live in the community, you can’t necessarily spend down with a hybrid policy.
Unlike in a traditional policy, a hybrid policy carries a cash value. So, if the couple needs to spend down assets, they can still purchase a hybrid policy, but those assets will still be countable for Medicaid purposes.
On the reverse side, you can keep this policy as an emergency fund, which may require a surrender charge, but it is available to the owner, should they need it, at any time.
If you’d like to learn more about your client’s options when working towards Medicaid eligibility or purchasing a long-term care policy, contact our office at 855-552-5893 to speak with a Benefits Planner.
I’m Collin Terry, and thanks for watching.