Hybrid Long-Term Care Policy

Also known as a “linked benefit” policy, a hybrid Long-Term Care policy links a permanent life insurance policy, or annuity, with a tax-qualified Long-Term Care Insurance rider. If the long-term care benefit is not used or is only partially used, the unused death benefit is paid out to policyholder’s heirs like any other life insurance policy or annuity would do.

Since these “hybrid” policies include a tax-qualified Long-Term Care policy, the trigger for benefits is like any other Long-Term Care policy (your need for assistance with two of the six activities of daily living or supervision due to cognitive decline). Unlike some life insurance policies that feature an accelerated death benefit if you are deemed critically ill and terminal, the hybrid plan provides complete long-term care benefits along with a death benefit. The policyholder will either get the tax-free long-term care benefit, the death benefit, or even both if they have not exhausted the full amount of the death benefit as a long-term care benefit.

The long-term care portion of the policy is generally called an “extension of benefits”. The insurance company first pays the insured’s long-term care benefit from the death benefit. Once that is exhausted, the extension of benefits rider kicks in extending the long-term care benefit.

The policyholder will generally pay one single premium at the time of policy inception although many companies offer annual pay for life, or limited pay (like for 10, 15, or 20 years). Hybrid policies are much more expensive; however, you are guaranteed to get money back either in the form of a death benefit or long-term care benefit. These premiums are guaranteed and never can increase.

Hybrid policies are not partnership certified. Most hybrid policies are not tax deductible like a normal Long-Term Care policy, however, some companies can “split” the premium to specify the portion applied to life insurance and the portion paying for long-term care. This that situation, a policyholder could deduct the long-term care premium under the rules as any other Long-Term Care policy. In addition, a Health Saving Account may be used to pay (or reimburse yourself) the cost of the long-term care portion of the premium using the pre-tax dollars from the HAS.

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