Hybrid long-term-care insurance—the coverage that’s added onto life insurance or an annuity to help pay for ongoing custodial care of a client at places such as nursing homes—has been outselling traditional stand-alone LTC policies for many years. In fact, in 2017—from which the most recent figures are available—roughly 260,000 hybrid policies were sold while only 66,000 traditional LTC plans were, says Catherine Theroux, a spokesperson for industry data cruncher LIMRA.

Experts caution, however, that hybrid LTC isn’t right for everyone. There are potential downsides, and not all hybrids are alike.

Key Advantages

The reasons for the popularity of hybrids are manifold. First, while stand-alone LTC premiums have risen precipitously in recent years, hybrid premiums tend to remain stable, since most are paid up front. Second, it’s usually easier for clients to qualify for hybrid LTC coverage because the underwriting standards tend to be less restrictive.

But perhaps most important, hybrid policies solve for the “use it or lose it” problem. That is, clients will receive benefits one way or the other—either through a long-term-care need or as a death benefit, or both. Traditional LTC policies, on the other hand, only pay out if the client experiences a qualifying need. If that doesn’t happen, the years of premium payments are wasted.

Yet these combination plans have a downside. “Hybrids lack some of the customization of stand-alone LTC insurance,” says Suk Pau, vice president and managing partner at the Wealth Consulting Group in Cupertino, Calif. “A stand-alone product can let you set the benefit period or amount, whereas these are less flexible in hybrid policies.”

In advising clients about their LTC insurance options, Pau says it’s a good idea to ask what’s important to them. “’What is your biggest concern?’” she says. This helps you find the product that best fits each client’s particular circumstances.

“For example, for people without heirs or who live by themselves, stand-alone LTC policies may be more appropriate,” she says, since these clients may not need a life insurance death benefit. On the other hand, clients who “face long-term progressive diseases may benefit from hybrid LTCs with an inflation rider,” she adds. “Clients need to work with financial advisors experienced with LTC policies … because not every policy underwriter works in the same way.”

Identify Clients’ Needs

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