In our recent blogs, we’ve talked about Long-term care planning; it’s importance in retirement planning, the challenges folks can face when choosing an option that best fits their needs, and some solutions that have developed in recent years. Traditional long-term care insurance policies have become less attractive due to frequent premium increases and availability issues. As a result, hybrid solutions, such as hybrid annuities and hybrid life insurance, have gained popularity.
Now that you may have a better understanding of the various options for long-term care planning, in this blog, we’ll break down the key differences between hybrid long-term care annuity and hybrid life insurance policies. By offering insights into their pros and cons, we’ll guide you through a side-by-side comparison to help you understand which approach might fit your long-term care needs. By the end of this blog, you’ll have an even better understanding of the types of long-term care insurance and how they can help you secure your retirement.
First, a quick refresher on hybrid annuities and hybrid life insurance solutions.
Understanding Hybrid Long-Term Care Annuity
Hybrid long-term care annuity is a solution that combines the benefits of an annuity with long-term care coverage. This approach allows individuals to leverage their investment for long-term care needs while maintaining certain financial guarantees.
One notable product in this space is the Equitrust Bridge. This policy guarantees issuance, which means that even if you have health conditions that would normally disqualify you from traditional life insurance or long-term care policies, you could still qualify for coverage. It simplifies the process through streamlined underwriting involving just a Zoom interview, without the need for medical exams or blood tests.
The Equitrust Bridge policy features a coverage ratio based on age and health, which determines the amount of long-term care benefits. For instance, a 55-year-old individual with a preferred health status who invests $100,000 would have a coverage ratio of 325%, translating to $325,000 in long-term care benefits. The coverage ratios vary by age, with older applicants receiving slightly lower multipliers.
Another essential feature of the Equitrust Bridge is the vesting schedule, where full access to the long-term care benefit base is achieved over five years. This policy also includes a 2% inflation rider, ensuring the benefit continues to grow over time to accommodate potential increases in care costs.
Exploring Hybrid Life Insurance for Long-Term Care
Hybrid life insurance, such as the Lincoln MoneyGuard Long-Term Care Insurance, offers a different approach to addressing long-term care needs. With this solution, you can secure long-term care coverage while simultaneously ensuring that a death benefit is available for your beneficiaries if you do not end up needing the long-term care benefits.
The Lincoln MoneyGuard product allows for flexible payment options. For example, a 60-year-old individual could pay annual premiums of $9,422 for ten years, after which no further premiums would be due. In return, this policy provides guaranteed long-term care coverage, which increases with a 3% compounding factor, making it more robust compared to the 2% inflation growth in some annuity-based products.
One of the key advantages of the Lincoln MoneyGuard policy is its guaranteed death benefit. Even if you don’t need long-term care, your beneficiaries will receive at least $120,000, which is the amount of the death benefit in the example provided. Over time, the policy’s long-term care benefits grow significantly, reaching $10,469 per month by age 85, with a total benefit base of $525,000.
However, Lincoln MoneyGuard’s underwriting process is more involved than Equitrust Bridge’s, with standard medical exams and a health questionnaire. This means that individuals with significant health issues may not qualify for this coverage.
Side-by-Side Comparison: Hybrid Long-Term Care Annuity vs. Hybrid Life Insurance
Now that we’ve provided an overview of each option, let’s compare them side-by-side to help you consider which may be a solution for you:
- Underwriting Requirements
- Equitrust Bridge (Hybrid Annuity): Guaranteed issue, with a streamlined process that requires only a Zoom interview for cognitive and physical assessments. Suitable for individuals with health concerns who may not qualify for traditional long-term care or life insurance.
- Lincoln MoneyGuard (Hybrid Life Insurance): Involves full underwriting, including medical exams. Best suited for individuals in good health, typically between the ages of 60 and 65.
- Funding Options
- Equitrust Bridge (Hybrid Annuity): Usually funded with a single lump sum payment. This makes it suitable for individuals who have accumulated savings or are looking to reposition funds from a non-qualified annuity.
- Lincoln MoneyGuard (Hybrid Life Insurance): Offers flexible payment options, such as spreading payments over ten years or opting for a lump sum payment. This makes it more accessible to those who prefer a payment plan.
- Growth of Benefits
- Equitrust Bridge (Hybrid Annuity): Provides a 2% annual growth on the long-term care benefits.
- Lincoln MoneyGuard (Hybrid Life Insurance): Includes a 3% annual compounding increase, making the long-term care benefit larger over time.
- Death Benefit
- Equitrust Bridge (Hybrid Annuity): Does not include a death benefit as a primary feature, although some residual value may be available if the long-term care benefits are not fully utilized.
- Lincoln MoneyGuard (Hybrid Life Insurance): Guarantees a death benefit for beneficiaries, ensuring that the premiums paid are not lost even if long-term care is not needed.
- Tax-Free Long-Term Care Benefits
- Both policies offer tax-free long-term care benefits once the insured qualifies by being unable to perform two out of the six activities of daily living (ADLs).
- Flexibility and Accessibility
- Equitrust Bridge (Hybrid Annuity): Ideal for those looking to reposition existing assets, particularly from non-qualified accounts. The streamlined underwriting process makes it a good option for those with health conditions.
- Lincoln MoneyGuard (Hybrid Life Insurance): Suitable for individuals who prefer the security of a death benefit and the flexibility of payment options. Best for those with adequate cash flow to handle annual payments.
Pros and Cons of Long-Term Care Insurance: Annuity vs. Life Insurance
Hybrid Long-Term Care Annuity (Equitrust Bridge)
Pros:
- Guaranteed issuance with no medical exams.
- Suitable for those with pre-existing health conditions.
- Allows repositioning of assets, such as a non-qualified annuity, into a tax-efficient long-term care vehicle.
- Offers tax-free withdrawals for long-term care needs.
Cons:
- Requires a lump sum investment, which may not be feasible for everyone.
- Five-year vesting schedule for full benefit access.
- Lower growth factor (2%) on long-term care benefits compared to some life insurance options.
Hybrid Life Insurance (Lincoln MoneyGuard)
Pros:
- Offers a guaranteed death benefit, ensuring premiums are not lost if long-term care is not needed.
- Provides a higher growth rate (3%) on long-term care benefits.
- Flexible payment options, including spreading payments over ten years.
Cons:
- More stringent underwriting requirements, making it difficult for those with health issues to qualify.
- May not be as suitable for those who prefer a single payment or have less cash flow flexibility.
Choosing the Right Long-Term Care Option
Deciding between hybrid long-term care annuity and hybrid life insurance largely depends on your personal circumstances, health status, and financial goals. For those with existing health conditions or older age, the Equitrust Bridge hybrid long-term care annuity may provide the best opportunity for securing coverage. On the other hand, individuals in good health who want the flexibility of payment options and a guaranteed death benefit might find Lincoln MoneyGuard a more suitable choice.
When considering these options, it’s important to think about how your long-term care retirement needs fit into your overall retirement planning strategy. Long-term care is a major concern for many as they approach retirement, and having a plan in place can help secure your retirement.
Conclusion
Understanding long-term care options is crucial for effective retirement planning. Hybrid solutions like hybrid long-term care annuity and hybrid life insurance provide innovative ways to ensure you have the coverage you need while offering unique financial benefits. By comparing the pros and cons of each, you can choose the solution that aligns best with your financial situation, health status, and long-term goals.
If you’d like to discuss these solutions and how they apply to you, you can start by scheduling a 15 minute call. A 15 minute call can be very productive in getting you started on answers to your questions and, if you would like, some guidance on what to do next.
Schedule your complimentary call with us to learn more about Long-Term Care – Annuity and Life Comparison.
