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Long-term care planning may turn to life insurance or annuities

Hybrid insurance policies are replacing classic long-term care insurance in Texas and around the country. The classic long-term policy has a major disadvantage -- if the coverage is not needed by the insured individual, the premiums paid are totally lost with no return on the investment. That is why hybrid policies, which combine long-term care planning benefits with life insurance or a fixed annuity, are selling far better than traditional coverage.

The decline in long-term care coverage has been due to a bad return for insurance companies and many customers alike. Insurers were paying out more benefits for longer periods than they had anticipated, and the many insureds who did not need nursing home or other care took a total loss on the funds paid out. The companies raised premiums progressively, which was followed by a growing trend for those owners of policies who were age 65 or older to let them lapse because they could not afford them.

The hybrid policies give the owners several benefits over long-term care policies. They are flexible in their use for various benefits not just long-term health care costs. They also can be left by the owner to specified beneficiaries after death. Logically, there is in general no reason to purchase the more restricted coverage unless the premiums are greatly reduced in comparison to the hybrid premiums.

There is a looming crisis in Texas and elsewhere due to the lack of universal coverage for long-term health care needs for aging baby boomers. Some legislative experts have recommended solutions to the long-term care planning dilemma. One is to make this type of insurance a requirement. Another is for government to devise a catastrophic plan for all elderly citizens. The third legislative proposal is to allow policy holders to turn life insurance coverage into long-term care policies.

Source: healthcaredive.com, "Are hybrid policies replacing long-term care insurance?", Julie Henry, March 23, 2016

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