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Most Americans will need assisted living or other care, and a hybrid insurance policy can help cover the cost

Published by Business Insider on Tue, 23 Feb 2021


<p><img src="https://static3.businessinsider.com/image/60340c2e38aa9f00185e0475-1920/HybridLongtermCare.jpg" border="0" alt="Hybrid Long term Care insurance" data-mce-source="Fstop123/Getty Images"></p><p></p><bi-shortcode id="disclaimer" class="mceNonEditable" data-type="pfi"></bi-shortcode><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><ul class="summary-list"><li>Most Americans will need some type of long-term care, either at home or in a nursing home.</li><li>Traditional long-term care insurance is a "use it or lose it" policy, and it requires receipts.</li><li>With hybrid long-term insurance, you get a monthly payment whether or not you need care.</li><li id="recirc"><a href="https://www.businessinsider.com/personal-finance" target="_blank" rel="noopener">Visit Personal Finance Insider for more stories</a>.</li></ul><bi-shortcode id="table-of-contents-sticky" class="mceNonEditable" data-type="h2">Table of Contents: Masthead Sticky</bi-shortcode><p>Industry experts say 50% of Americans will need some type of long-term care assistanceat-home care, assisted living, or care in a nursing homein their retirement. "Americans are living longer, but not healthier lives," said Mark Williams, CEO of <a href="https://www.biltd.com/" target="_blank" rel="noopener">Brokers International</a>.</p><p>But it comes at a major cost. Barbara Pietrangelo, a certified financial planner and life insurance specialist with <a href="https://www.prudential.com/advisor/barbara-pietrangelo" target="_blank" rel="noopener">Prudential</a>, told Insider that rates for <a href="https://www.businessinsider.com/personal-finance/long-term-care-insurance#what-is-long-term-care-insurance'" target="_blank" rel="noopener">long-term care insurance</a> have increased (sometimes even doubled) over the years. To minimize the expense, it's best to get long-term care when you are healthy and in your 40s.</p><p>Long-term care insurance is a "use it or lose it" policy, meaning if you don't need it during your lifetime, you don't benefit from paying premiums all those years. However, hybrid long-term care insurance is an alternative that will lock in the value of your premiums whether you end up using long-term care or not.</p><h2><strong>What is long-term care insurance'</strong></h2><p>According to the <a href="https://longtermcare.acl.gov/costs-how-to-pay/what-is-long-term-care-insurance/" target="_blank" rel="noopener">US. Department of Health and Human Services</a>, "Unlike traditional health insurance, <a href="https://www.businessinsider.com/personal-finance/what-is-long-term-care-insurance">long-term care insurance</a> is designed to cover long-term services [at-home, assisted living, and nursing home] and supports, including personal and custodial care."</p><p>If you are in poor health or already receiving long-term care services, you may not qualify for long-term care insurance, as you'll need to submit to medical exams to get most individual policies.</p><p>As with other types of insurance, you pay a monthly premium until you make a claim; then, the insurance should start covering the costs you incur.</p><p>Unlike other types of insurance, though, you think of long-term care insurance in terms of days: how much coverage you'll pay for depends on exactly how many days you want to be covered.</p><p>Ultimately, long-term care insurance pays for care in three situations:</p><ol><li aria-level="1"><strong>In-home care:</strong> A family member or caregiver comes to the house or adult daycare</li><li aria-level="1"><strong>Assisted living:</strong> You live in an apartment but have a nurse on staff</li><li aria-level="1"><strong>Nursing home:</strong> You live in a semi-private or private room with skilled nursing staff</li></ol><h3><strong>What qualifies for long-term care insurance'</strong></h3><p>In order to qualify for long-term care insurance, you need a "triggering event" to occur. To establish a claim, you need a doctor's note to prove that you can't do two of the six activities of daily living (referred to as ADL).</p><p>Long-term care insurance based on ADLs is a specific end-of-life type coverage.</p><p>There are six ADLs:</p><ol><li aria-level="1">Ambulating: the ability to move around and walk independently</li><li aria-level="1">Feeding oneself</li><li aria-level="1">Dressing oneself</li><li aria-level="1">Personal hygiene: the ability to bathe and groom oneself, the inability to clip toenails or brush teeth</li><li aria-level="1">Continence: bladder and bowel control</li><li aria-level="1">Toileting: using the toilet by oneself</li></ol><h2><strong>Long-term care insurance versus hybrid long-term care insurance</strong></h2><table style="width: 100%; border-collapse: collapse;" border="1" cellpadding="10px"><tbody><tr><td style="width: 50%;"><strong>Long-term care insurance</strong></td><td style="width: 50%;"><strong>Hybrid long-term care insurance</strong></td></tr><tr><td style="width: 50%;"><ul><li>Use it or lose it</li><li>Need to turn in receipts</li><li>Must be in nursing home</li><li>At-home care available via add-on rider but must be a licensed professional</li></ul><p></p></td><td style="width: 50%;"><ul><li>Premiums locked in with a death benefit</li><li>No receipts, automatic payments</li><li>Flexibility to pause</li><li>Use for at-home care, assisted living, or nursing home</li></ul><p></p></td></tr></tbody></table><p>Traditional long-term care insurance is "use it or lose it," similar to <a href="https://www.businessinsider.com/personal-finance/types-homeowners-insurance" target="_blank" rel="noopener">homeowners insurance</a>. If you don't need or use it during your lifetime, you don't benefit from paying premiums all those years. A hybrid policy, on the other hand, locks in the premiums you pay with the death benefit that goes to your beneficiaries, so the money you pay each month isn't wasted or gone if you don't use the benefits.</p><p>Pietrangelo said that most assisted living is private pay only, meaning you foot the bill. The average nursing home can cost as much as $9,800 per month and assisted living can run $6,000 per month.</p><p>With a traditional long-term care insurance policy, you'd need to pay out-of-pocket and submit receipts to be reimbursed. With a hybrid long-term care insurance policy, on the other hand, you don't need receipts. Instead, once you have a qualifying event, a hybrid policy automatically pays 2% of your benefits for up to 50 months to equal your 100%.</p><p>For example, let's say you have a $400,000 hybrid long-term care insurance policy with $100,000 in coverage for long-term care and a $300,000 death benefit. In this case, you will receive a check for 2% of your $100,000 tax-free every month for 50 months, no receipts necessary.</p><p>Hybrid insurance offers flexibility for you to freeze or stop benefits. If you used benefits for six months, but no longer need assistance, you can freeze and stop benefits for use in the future.</p><p>Another big difference is that traditional long-term care insurance can only be used for nursing home care. Pietrangelo said some companies offer an add-on rider to include at-home care but only if the care is provided by a licensed professional. A hybrid policy allows you to use a relative to help take care of you in-home, and you can pick between in-home care, assisted living, or a nursing home without an additional rider.</p><p>With traditional long-term care insurance, if you paid premiums and have a heart attack and die, you lose those premium payments completely because you never used long-term care. With a hybrid long-term care policy, someone will still get the death benefit, so the money you paid into the policy is not gone.</p><h2><strong>Medicare versus Medicaid for long-term care</strong></h2><table style="width: 100%; border-collapse: collapse;" border="1" cellpadding="10px"><tbody><tr><td style="width: 50%;"><strong>Medicare</strong></td><td style="width: 50%;"><strong>Medicaid</strong></td></tr><tr><td style="width: 50%;"><ul><li>Must be 65</li><li>Only covers long-term care under special circumstance</li><li>Maximum 100 days covered</li><li>Only pays $100/day any overage you must pay out-of-pocket</li><li>Managed by federal government</li></ul></td><td style="width: 50%;"><ul><li>Managed by states</li><li>Serves low-income people</li><li>No age restriction</li><li>Limits your assets for eligibility</li><li>Look back period</li></ul></td></tr></tbody></table><p><a href="https://www.medicareresources.org/faqs/to-what-extent-will-medicare-cover-long-term-care/" target="_blank" rel="noopener">Medicare</a> is a federal health insurance program and isn't available until you are 65 years old. For older retired people who aren't eligible for Medicare, health insurance can effectively be a new mortgage, averaging $800 per month.</p><p>Once you are eligible for Medicare, it only pays for 100 days of long-term care, under certain circumstances, for $100 a day. Pietrangelo said if there is a shortage or difference, you or your family must pay it. This is where long-term care insurance or a hybrid policy comes into play.</p><p>Medicare does not cover dental, vision, hearing aids, or foot care. One of the ADLs to trigger eligibility for long-term care is the inability to do personal hygiene, such as clipping toenails. Medicaid does allow for a recipient to go to the podiatrist every 6 weeks to get nails clipped. However, qualifying for Medicaid is a different process than Medicare.</p><p><a href="https://www.hhs.gov/answers/medicare-and-medicaid/what-is-the-difference-between-medicare-medicaid/index.html" target="_blank" rel="noopener">Medicaid</a> is managed by states with federal funds and serves low-income people of all ages, according to DHHS. To qualify for Medicaid, you must have less than $2,000 in assets plus an allowance for enough funds to pay for your funeral.</p><p>To avoid people giving property and assets to relatives to qualify for Medicaid for long-term care, Pietrangelo said that some states have a "<a href="https://www.medicaidplanningassistance.org/medicaid-look-back-period/" target="_blank" rel="noopener">look back</a>" period where your assets are reviewed for the five years prior to your nursing home admission paid by Medicaid. Once you're eligible for Medicaid, any funds you receive arepaid directly to the nursing home with the exception of $30 per month given to you for personal needs.</p><aside class="quick-tip headline-regular"><p>Those who don't properly plan ahead or understand Medicare rules can end in up in a financial bind.</p><p>Pietrangelo gave the example of a client that was 59 years old and offered a buy-out for early <a href="https://www.businessinsider.com/personal-finance/women-plan-for-retirement-life-insurance" target="_blank" rel="noopener">retirement</a> by her employer. Due to the client's finances, the cost of paying for healthcare was not worth the early retirement.</p><p>If the client took the early retirement, she would need to work a regular or part-time job just to pay for health insurancewhich averages $800 a month.</p></aside><h2><strong>The cost of long-term care insurance</strong></h2><p>The <a href="https://www.businessinsider.com/personal-finance/long-term-care-insurance#the-cost-of-long-term-care-insurance" target="_blank" rel="noopener">cost of long-term care insurance</a> has gone up over the years as more people need it, and it will vary based on where you live, your age, your health, and how much coverage you select.</p><p>Depending on the amount of per-day coverage you select, you still may have out-of-pocket expenses for care. In the table below, you can get an idea for how much various types of care cost per year. Long-term care is needed for two years on average.</p><table style="width: 100%; border-collapse: collapse;" border="1" cellpadding="10px"><tbody><tr><td style="width: 33.3758%;" data-sheets-value='{"1":2,"2":"Type of care"}'><strong>Type of care</strong></td><td style="width: 33.3758%;" data-sheets-value='{"1":2,"2":"Average annual cost long-term care"}'><strong>Average annual cost for long-term care</strong></td><td style="width: 33.3758%;" data-sheets-value='{"1":2,"2":"Cost per day"}'><strong>Cost per day</strong></td></tr><tr><td style="width: 33.3758%;" data-sheets-value='{"1":2,"2":"In-home care (44 hours per week)"}'>In-home care (44 hours per week)</td><td style="width: 33.3758%;" data-sheets-value='{"1":3,"3":48000}' data-sheets-numberformat='{"1":4,"2":""$"#,##0","3":1}'>$48,000</td><td style="width: 33.3758%;" data-sheets-value='{"1":3,"3":131.5}' data-sheets-numberformat='{"1":4,"2":""$"#,##0.00","3":1}'>$131.50</td></tr><tr><td style="width: 33.3758%;" data-sheets-value='{"1":2,"2":"Adult daycare/drop-off (5 days per week)"}'>Adult daycare/drop-off (5 days per week)</td><td style="width: 33.3758%;" data-sheets-value='{"1":3,"3":18200}' data-sheets-numberformat='{"1":4,"2":""$"#,##0","3":1}'>$18,200</td><td style="width: 33.3758%;" data-sheets-value='{"1":3,"3":49.86}' data-sheets-numberformat='{"1":4,"2":""$"#,##0.00","3":1}'>$49.86</td></tr><tr><td style="width: 33.3758%;" data-sheets-value='{"1":2,"2":"Assisted living (1 bedroom)"}'>Assisted living (1 bedroom)</td><td style="width: 33.3758%;" data-sheets-value='{"1":3,"3":45000}' data-sheets-numberformat='{"1":4,"2":""$"#,##0","3":1}'>$45,000</td><td style="width: 33.3758%;" data-sheets-value='{"1":3,"3":123.28}' data-sheets-numberformat='{"1":4,"2":""$"#,##0.00","3":1}'>$123.28</td></tr><tr><td style="width: 33.3758%;" data-sheets-value='{"1":2,"2":"Nursing home (semi-private room)"}'>Nursing home (semi-private room)</td><td style="width: 33.3758%;" data-sheets-value='{"1":3,"3":85000}' data-sheets-numberformat='{"1":4,"2":""$"#,##0","3":1}'>$85,000</td><td style="width: 33.3758%;" data-sheets-value='{"1":3,"3":232.87}' data-sheets-numberformat='{"1":4,"2":""$"#,##0.00","3":1}'>$232.87</td></tr><tr><td style="width: 33.3758%;" data-sheets-value='{"1":2,"2":"Nursing home (private room)"}'>Nursing home (private room)</td><td style="width: 33.3758%;" data-sheets-value='{"1":3,"3":97000}' data-sheets-numberformat='{"1":4,"2":""$"#,##0","3":1}'>$97,000</td><td style="width: 33.3758%;" data-sheets-value='{"1":3,"3":265.75}' data-sheets-numberformat='{"1":4,"2":""$"#,##0.00","3":1}'>$265.75</td></tr></tbody></table><p><em>Data from Brokers International based on 2017 national figures.</em></p><p>For hybrid long-term care insurance costs, you need to speak with an agent that knows the various <a href="https://www.businessinsider.com/personal-finance/what-is-permanent-life-insurance#types-of-permanent-life-insurance-policies-" target="_blank" rel="noopener">permanent life insurance products</a> because the cost varies based on the type of permanent life insurance you choose<a href="https://www.businessinsider.com/personal-finance/what-is-whole-life-insurance" target="_blank" rel="noopener">whole life</a>, <a href="https://www.businessinsider.com/personal-finance/universal-life-insurance" target="_blank" rel="noopener">universal life</a>, or <a href="https://www.businessinsider.com/personal-finance/variable-life-insurance" target="_blank" rel="noopener">variable life</a>.</p><p>The average 55-year-old American with long-term care insurance pays the following annual premium:</p><table style="width: 100%; border-collapse: collapse;" border="1" cellpadding="10px"><tbody><tr><td style="width: 49.9363%;" data-sheets-value='{"1":2,"2":"Gender"}'>Gender</td><td style="width: 50.0637%;" data-sheets-value='{"1":2,"2":"Average annual premium long-term care insurance"}'>Average annual premium for long-term care insurance</td></tr><tr><td style="width: 49.9363%;" data-sheets-value='{"1":2,"2":"Single male, age 55 "}'>Single male, age 55</td><td style="width: 50.0637%;" data-sheets-value='{"1":3,"3":2050}' data-sheets-numberformat='{"1":4,"2":""$"#,##0","3":1}'>$2,050</td></tr><tr><td style="width: 49.9363%;" data-sheets-value='{"1":2,"2":"Single female, age 55"}'>Single female, age 55</td><td style="width: 50.0637%;" data-sheets-value='{"1":3,"3":2700}' data-sheets-numberformat='{"1":4,"2":""$"#,##0.00","3":1}'>$2,700</td></tr></tbody></table><p><em>Data from 2019 </em><a href="https://www.aaltci.org/long-term-care-insurance/learning-center/ltcfacts-2019.php#2019costs" target="_blank" rel="noopener"><em>American Association for Long-Term Care Insurance</em></a></p><p>Women <a href="https://time.com/5538099/why-do-women-live-longer-than-men/" target="_blank" rel="noopener">live longer</a> than men and will most likely outlive their male partner and may also be a caregiver for elderly parents. The longer life span means increased costs for women.</p><h2>Remember to plan ahead</h2><bi-shortcode id="related-article-module" class="mceNonEditable" data-type="5f63dc6497b25550820c298b" data-title="Half of Americans will need care as they age, and long-term care insurance can help cover the high cost" data-url="https://www.businessinsider.com/personal-finance/long-term-care-insurance" data-thumbnail="https://i.insider.com/5f64dd63323fc4001e0d71f3" data-shortcode-display-text="Related Article Module: Half of Americans will need care as they age, and long-term care insurance can help cover the high cost"></bi-shortcode><p>Long-term care is expensive. However, most Americans will need long-term care at some point during their retirement. It's cheaper to get long-term care insurance while you're relatively young and healthy, so you should be considering long-term care insurance in your 40s.</p><p>If you are thinking about hybrid long-term care insurance, you need to speak with an insurance specialist or financial advisor that understands <a href="https://www.businessinsider.com/personal-finance/types-of-life-insurance" target="_blank" rel="noopener">permanent life insurance</a> to make sure you get the best policy for you and your needs.</p><div><div id="policygenius-price-calculator" data-offer-id="176" data-aff-id="1592"></div><script src="https://www.policygenius.com/price-calculator/calculator.js" type="text/javascript"></script></div><p>When looking for a financial planner, it's important that you're comfortable with them. It's about establishing trust, Pietrangelo said, noting that having a financial planner you can be honest with is like having a good personal trainer. You don't want to feel judged, but you want someone to nudge you in the right direction.</p><p><em>Ronda Lee is an associate editor for insurance at Personal Finance Insider covering life, auto, homeowners, and renters insurance for consumers. She is also a licensed attorney who practiced litigation and insurance defense.</em></p><bi-shortcode id="related-content-module" class="mceNonEditable" data-type="more-on-life-insurance" data-sheetname="More on Life Insurance">Related Content Module: More on Life Insurance</bi-shortcode><p><a href="https://www.businessinsider.com/personal-finance/hybrid-long-term-care-insurance-vs-long-term-care-insurance#comments">Join the conversation about this story &#187;</a></p>
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