Hybrid Life Insurance – Pandemic Boosts Interest in Innovative Solutions for Long-Term Care Coverage

Hybrid Life Insurance – Pandemic Boosts Interest in Innovative Solutions for Long-Term Care Coverage

You might think the pandemic has pushed the long-term healthcare crisis off the agenda of average Americans. Far from it.

Covid-19 in fact underlined the point: health crises can spring up, unbidden, at any moment of life. Treatment is costly and rising. Skimping is no option: the care you get and where you receive it can affect your chances of life or death.

It turns out the most dangerous place to live during the pandemic was a nursing home or similar care facility. People have always seen homecare as the preferable option. Sellers of long-term healthcare policies tell me that homecare riders are often the dealmaker or breaker for a sale.

What happened to us during the pandemic? The story is still coming in, but a few early facts: the youth were most vulnerable, took it harder than older groups. Take my case: I’ve lived through lost wars; inflation, deflation, and stagflation; social upheaval, political mayhem, across three or four countries; to say nothing of personal loss. The longer you live the more kickings are inflicted; it toughens you up to take more punishment.

The young people, though – they haven’t had time. Uncertain information, indecisive leaders, shutdowns, lockdowns, working isolated at home, and that most stinging lesson: life is precarious. In the narrow strata of this article, we find our focus. LT healthcare insurance was once solely for oldsters, but nowadays, younger customers are getting interested.

To help them along, let’s share some info. Statistics say 70% of Americans who live to retire will need long-term treatment. LT healthcare is defined in terms of personal care, rather than a disease or condition. Six activities of daily living determine its need: bathing, dressing, the ability to walk or move about, toileting, and continence issues. If a person needs help with two of those issues, they may need long-term care.

Whether administered in a nursing home, community center or your own home, long-term healthcare is expensive and costs are climbing. The median annual cost of homemaker services, where patients receive cleaning, cooking and other domestic assistance, but no medical treatment, was $53,768 in 2020. That reflects a 41% rise on 2004. A stay at an assisted living facility cost $52k, up 79% in the period. A private room in a nursing home was $105k, a 62% boost on 2004.

Industry experts agree: expect future costs to follow this ever-upward trend in the decades ahead.

People commonly plan to rely on Medicare and Medicaid to pay for LT care. Medicaid covers nursing home stays, but with strict income limits to qualify that vary by state. Generally, if you are elderly with an income less than 100-200% of the federal poverty level, you qualify. This year, the individual poverty level is $12,880; for two people in one household, it’s $17,420. If your retirement income exceeds these low thresholds, you may not qualify.

Medicare doesn’t cover LT care, though Medicare Part A can help cover 100 days in what they call a skilled nursing facility. For days 21 to 100, the patient is bound to cough-up a co-payment – it was $176/day in 2020.

Limited government alternatives drive interest in long-term healthcare insurance policies. The use of these traditional products is declining, though. Providers are leaving the industry; they can’t cover their costs. Purchasers have been unhappy with their policies, too, as their premiums have spiked. Those rising LT care costs are to blame. Prospective customers, noting the recent trend in premiums, are wary of buying.

LT policies are still viable given their innumerable, customizable features – recall that at-home care rider. One element has never been popular, though: traditional policies are a use-it-or-lose-it proposition. You pay the premium (a married couple could easily spend north of $5,000 per year); if you get sick, you’re covered to the policy’s limits. But if you’re among the lucky 30% who don’t need LT care, the money invested is gone. Peace of mind has a price tag.

In the search for alternatives to traditional products, hybrid life insurance policies are gaining popularity and sales.

Hybrids combine long-term care coverage with a death benefit. They are sold by reliable providers like Nationwide, New York Life, Transamerica, Genworth and other solid contenders. This isn’t a simple robo-purchase, in my view: you should consult with human professionals. This can easily be done online, mind you, so there’s no need to take off your slippers.

Hybrid policies come in many flavors, but all draw down the death benefit to pay for long-term care. They pay out in cash, in distinction to traditional LT policies, which cover qualified invoices. This adds flexibility: you could pay a relative to assist you, for example, with no explanation or argument, and the choice of homecare, assisted living or other arrangement is solely up to you.

If you don’t tap the health benefits or use only a portion, your heirs will receive all remaining funds as a death benefit. However the chips fall in your senior years, you or your heirs will enjoy some financial benefit from a hybrid life policy.

The limiting factor for hybrids is cost: it can be high, though the dizzying price tag is deceptive. Compared to traditional LT care policies, the cost is similar when stretched over the insured party’s lifetime; it all depends on what you can handle, how much you can tie up.

Let’s try to unsoften the blow. It’s common to lay down $100,000 in a lump-sum premium for a hybrid. For some products, the payment can be spread over one, five or ten years. The reason for paying a big up-front premium is to lock-in the policy cost. When shopping around, only consider products with guaranteed premiums; firmly reject any non-guaranteed quotes – that’s a rule.

When should you purchase a long-term care policy? Industry wisdom says, start planning at 50, buy no later than 62. I see it this way: anxious youths in your 20s – get educated in saving, investing and retirement planning. At 30, get going; steadily pick up the pace. Be ready by 40, to buy a policy at 50 – this planning leaves leeway, in case you need more time. Starting early is the key to success – and keeping costs low.

I wish you, dear readers, a long, pleasant journey. But to paraphrase a grand dame of the cinema: however you travel, it’s going to be a bumpy ride. Start shopping for a stout seatbelt today.

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