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Standard vs. Hybrid Life Insurance: Which Is Better?

Standard life insurance has a single purpose – to provide death benefits to your beneficiaries. Hybrid life insurance combines long-term care insurance and life insurance in a single policy. If you become disabled and unable to live independently, it covers the costs of your care, at home or in a facility. It will not cover medical expenses, such as doctor visits, surgical procedures, or prescription drugs, that are normally covered by your health insurance. 

How Does Hybrid Life Insurance Work?

A hybrid policy combines elements of permanent life insurance with long-term care protection. If you purchase a hybrid policy with, for example, $200,000 in benefits and die without needing long-term care, the full benefit amount of $200,000 is paid out to your beneficiaries. If, on the other hand, you need long-term care at some point, death benefits in your hybrid policy can be converted to cash to pay for your long-term care expenses. The death benefit your beneficiaries receive will be reduced accordingly, dollar for dollar. 

What Are the Pros of Hybrid Life Insurance?

Many people are buying hybrid life insurance because it solves a major problem with long-term care insurance – if you never need long-term care, the money you spent on premiums is wasted. With a hybrid policy, if you die without needing long-term care, your beneficiaries get the full benefit amount. At the same time, you have some protection in case you become disabled and need care. This type of policy offers tax-free reimbursement for qualified long-term care expenses, as well as tax-free death benefits. 

Advantages of hybrid life insurance policies include:

  • No use-it-or-lose-it risk
  • Locked in premium rates
  • Less stringent medical underwriting requirements in some cases
  • Cash indemnity benefits are still offered by some plans (unlike new traditional long-term care policies)
  • Prevents your estate from being depleted by costs of long-term care

What Are the Cons of Hybrid Life Insurance?

There are some disadvantages with hybrid life insurance:

  • You may need more money upfront to pay your premiums. 
  • You get fewer benefits for your policy premiums than with standard life insurance or long-term care insurance. 
  • Long-term care payouts reduce the policy’s cash value and death benefit amount. If you require long-term care for an extended time, this could leave your beneficiaries with no death benefit. 
  • You must meet long-term care eligibility requirements to receive benefits. This means a licensed healthcare practitioner must certify that you are cognitively impaired or unable to perform two or more of the six activities of daily living for 90 days or more. These activities are eating, bathing, dressing oneself, using the toilet, walking from one place to another, and maintaining bowel and bladder continence. 
  • You must complete an elimination period (usually 90 days) before long-term care benefits begin. 
  • You are only covered for the first five years of assisted living care.

There may be a number of factors to consider in choosing between standard and hybrid life insurance. Our agent is happy to review the pros and cons of both types of policies with you.