As premiums for long-term care insurance go up and more large providers pull out of the market all together, the landscape for long-term care insurance is changing dramatically.

Some hybrid packages that combine long-term care with life insurance or annuities are emerging and more will be put forward in the next few years,  experts say.

Prudential Financial Inc. recently pulled out of the individual long-term care market, although the company will continue to honor policies already sold. But Prudential is only the latest of a string of companies removing themselves from this market. Some experts feel it is a natural reshuffling of a relatively new market and that long-term care insurance will continue to be available from some major firms, although prices will increase.

Others feel the situation is more dire and that actuaries miscalculated the entire market when it started in the 1970s and more companies will be pulling out.

Whichever result turns out to be true, hybrid policies offered as riders to life insurance and annuities, as well as other new products that have not surfaced yet, will take the place of strictly long-term care policies, the experts say. "More than 30% of the illustrations (propositions) for life insurance that we run here for people over 45 years of age have some type of long-term care rider and the percentage is growing," says Jim Swink, vice president of Raymond James Insurance Group who specializes in long-term care among other things.

"Some companies have pulled out, but I expect others to be in for the long haul," says Swink, who feels long-term care policies are not going to disappear.  But other offerings are going to become available, particularly in a couple  of years as the Federal Reserve raises interest rates to increase and insurance companies can begin making more profit on their investments, he says.

Russ Barschi, a registered investment advisor, and president of Seminars for the Advancement of Financial Education, located in New York City, feels rates for long-term care insurance will continue to escalate at faster than the rate of inflation as actuaries get a better idea of the risks the insurance companies are open to for these policies. "Five years from now you will be able to buy long-term care insurance, but will it be affordable? Mutual of Omaha, one of the largest providers, just filed for a price increase and it is pretty clear all companies are going to get hit down the road as baby boomers age," he said, forcing more price increases.

Premiums frequently are jumping to $3,000 or $5,000 a year for a typical buyer, advisors warn. That already has left many people who otherwise need these policies behind, unable to afford them.

As result, new hybrid insurance and annuity policies are being created to fill the gap and promise to become alternatives to the traditional methods of covering seniors in difficult years. These alternative policies are relatively new, but financial advisors are beginning to discover them, according to experts in the field.

Long-term care policies cover a certain level of care, sometimes home health care, for a specified period of time, depending on the policy. Financial planners have long advised their clients to anticipate long-term-care needs, including assisted living or a lengthy stay in a nursing home. Without insurance to cover those needs, entire estates can be wiped out, especially if a client's stay in a nursing home, costing several thousand dollars a month, is extended.

But not only are long-term-care insurance rates increasing drastically, the cost of long-term care itself is skyrocketing, to several thousand dollars a month in many instances. Insurance companies have responded with life insurance policies or annuity policies with long-term care as a rider and an alternative to a death benefit if it is needed before the policyholder dies.

"We have been dealing with these policies for about a year now," says Larry Rosenthal, a CFP licensee and the president of Financial Planning Services in Manassas, Va. "We are very comfortable with it as an alternative to traditional long-term care."

The need for the insurance and the possibility of alternatives "at least gets an interesting conversation started with your clients," he says.

Rosenthal says a $400,000 life insurance policy that could pay $8,000 a month in long-term-care insurance benefits would cost a 55-year-old person around $3,000 to $5,000 a year. He is not a fan of paying for a single premium life insurance policy.

It can become prohibitively expensive for a person to buy long-term care insurance by the time the person is in his mid to late 70s, Rosenthal says. Adding a long-term care provision to a life insurance policy adds to the cost but is still less expensive than buying two policies, life and long-term care.

If the owner adds a long-term-care rider to the policy, the policy will pay monthly benefits if the person is meets certain qualifications, such as not being able to perform two of the basic functions of independent living, says Bob Gertie, owner of Advisor Insurance Resource, based in Parker, Colo., which deals with all types of insurance and 60 different insurance companies on behalf of advisors.

The drawback for a single premium policy is that the person has to have the money to put down to buy the life insurance or annuity policy, and that can be expensive.

Gertie explains by using an example. He says a couple from California, both age 52, could purchase a universal life policy that provides $93,600 in death benefits each, or $187,200 for both, for a combined single premium of $141,365.

The catch is that the couple has to be wealthy enough to be able to use $141,000 from their savings or from an investment that they will not need for retirement income in a few years.

Most life insurance policies with a long-term-care rider work like traditional long-term-care insurance and kick in when the person cannot perform a certain amount of the functions for daily care.

The policy described by Gertie would provide $3,900 a month for up to six years, which is longer than the standard two or three years usually covered by traditional long-term-care insurance. "In simple terms, they can pay $141,365 for $280,000 of long-term-care benefits each," Gertie says.

Another alternative, he says, is a hybrid annuity that pays for long-term care. The amount paid into the annuity plus interest is available as a normal annuity payment set by the terms of the policy. But if it is needed for long-term care and the holder has a long-term-care rider, it pays out nearly double in long-term-care benefits. The fees for the long-term-care option are higher than normal annuity fees. Any money left over that has not been used for long-term care is still available at the end as a death benefit or as an annuity payout for the survivors.

For those people who are looking to self-insure for long-term care and who do not need the death benefit from a life insurance policy, the annuity hybrid is preferable to the life insurance hybrid, Gertie says. This is partly because a death benefit could complicate the estate distribution and taxes after the policyholder dies.

But a strong selling point for the annuity hybrid is that it keeps the death benefit or annuity payments available for family if the policyholder dies and hasn't used the long-term-care coverage. If the same couple had been paying for traditional long-term-care insurance and did not need it, the money would just be gone.

Jim Sloan, an estate and retirement planning specialist in Houston, Texas, who deals mostly with clients 55 years old and older, says that for the past two years he has been dealing with life insurance policies with long-term-care riders because they fit client demands. "Most of [the clients] do not have long-term-care insurance because it is too expensive, and if they do not use it they never get anything back," he says.

A $50,000 single premium policy can turn into $250,000 in long-term-care benefits with the right rider, he says, and if the clients want their money back before they collect long-term-care benefits, they can get it. Otherwise, it converts into a traditional life insurance policy worth $150,000 when they die.

"Here is an alternative in a universal life insurance policy with a long-term-care rider and an optional money-back-guarantee rider. Or the family collects the death benefit when the person dies," Sloan says."There are three ways to provide for long-term-care costs. You can self-insure, you can buy a traditional policy or you can buy one of these new hybrid policies. You can write in a cost-of-living adjustment for the long-term care, but if you never need it, the family gets the death benefit."

For most people, the amount of benefits for long-term-care coverage goes down the longer you wait to buy the policy. "The sweet spot for buying this hybrid policy is between the ages of 55 and 70," Sloan says.

He encourages retirees to consider one of these asset-backed long-term-care coverages of life insurance with a long-term-care illness rider.  "The policy offers the ability to multiply dollars for long-term-care purposes. It has a 100 % money-back guarantee, as well as a death benefit," he says. "Many retirees have money stashed away in a rainy day fund that they can easily repurpose to help address long-term-care concerns."

Kimberly Foss, president of Empyrion Wealth Management in Roseville, Calif., has just started using these types of policies, and she deals with Gertie's Advisor Insurance Resource. Her practice is mostly retirees and women in transition. "I think this will catch on," Foss says. "We do not know what the insurance industry and premiums will look like in a few years. Why put up $3,000 to $5,000 a year for long-term-care insurance when you don't know if you will get anything back?"

Foss placed a policy for a client recently, and the client has the option of using it for long-term-care insurance if necessary or taking the money for retirement.

"A lot of advisors have not heard of these hybrid policies today," says Rob Russell, president of Russell & Company in Dayton and Cincinnati, Ohio. "If you have a $1 million life insurance policy, that is more than enough to pay for nursing home care for four years with a little left over for a death benefit," Russell says. "In some policies, 96% of the death benefit is available for long-term care, with whatever is not used of the original premium available for payout as a death benefit."