The Hybrid Life and Long-Term Care Solution

Hybrid life insurance products add a long-term care “rider” to a permanent life insurance policy. The added long-term care feature allows the insured to receive a tax-free advance on her life insurance death benefit to pay for long-term care while he/she is still alive.  The insurance benefit kicks in when the policyholder can't perform two of the six "activities of daily living." Once a doctor certifies that the person is eligible, the insured can start to accelerate her death benefit to pay a monthly amount that covers her long-term care costs. 

For example, an individual with a life insurance policy with a face amount of $100,000 who wishes to accelerate the death benefit to pay for long-term care can receive 2 percent of the face amount each month. In this example, the individual would receive $2,000 per month for care.

The long-term care benefit can be used to cover any level of care, including home care, although company policies differ and some may exclude mental conditions, which can be common among senior citizens.  In most cases, the beneficiary gets a monthly check rather than submitting bills for reimbursement.

One very attractive benefit to policyholders is the possibility that heirs will receive the portion of the death benefit that is not consumed by long-term care costs. Using the example from above, the individual used their long-term-care benefits for 1 year, adding up to $24,0000 ($2,000 x 12 Months). Then the individual passed away. Their beneficiaries would receive $76,000 ($100,000 - $24,000, which was the amount used for care).

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* Judith Dey and Melissa Favreault, “Long-Term Services and Supports for Older Americans: Risks and Financing Research Brief,” U.S. Department of Health & Human Services, February 2016.

** “How Much Care Will You Need?” LongTermCare.acl.gov, October 10, 2017.