We do love it when someone refers a family member or friend to us. Sometimes the question is, “How can we introduce them to you?” Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.
Here are this week’s items:
Portfolio Update: Murs and I have recorded our portfolio update for September 30, 2024
Long-Term Care Solutions and Retirement – Hybrid Life Insurance
Radon and Murs discuss the life insurance-based hybrid long-term care solutions, building on their previous conversation about hybrid annuities. They explore the advantages of a hybrid approach, particularly focusing on the MoneyGuard Fixed Advantage policy as an example. They explain how this product offers both…
Long-Term Care Solutions and Retirement – Hybrid Life Insurance
Radon and Murs discuss the life insurance-based hybrid long-term care solutions, building on their previous conversation about hybrid annuities. They explore the advantages of a hybrid approach, particularly focusing on the MoneyGuard Fixed Advantage policy as an example. Radon and Murs explain how this product offers both…
When it comes to retirement planning, one major concern that often surfaces is long-term care. How will you fund it? What options do you have to ensure your future well-being while protecting your hard-earned assets? The world of long-term care insurance has changed drastically over the past few decades, moving away from traditional models that required ongoing premiums to newer solutions designed to provide more flexibility and security. One of these innovative solutions is hybrid long-term care insurance, particularly policies that combine life insurance with long-term care benefits.
What makes hybrid long-term care insurance so intriguing is its ability to offer dual benefits: life insurance coverage alongside long-term care protection. This means that your funds are available for care when you need them, but if you don’t end up needing long-term care, your beneficiaries will still receive the life insurance payout. In this blog, we will explore this hybrid approach, focusing specifically on products like Lincoln Financial’s MoneyGuard Fixed Advantage and how they provide solutions for securing your retirement and planning for the uncertainties of the future.
Understanding Hybrid Long-Term Care Insurance
Long-term care (LTC) is a significant expense in retirement, and traditional LTC insurance has faced criticism due to rising premiums and the risk of never using the benefits despite paying into it for years. Hybrid long-term care insurance offers an alternative by blending LTC coverage with life insurance, ensuring that the money you put into the policy isn’t lost if you never require care. Instead, the death benefit will pass on to your beneficiaries.
MoneyGuard Fixed Advantage, for instance, is a life insurance policy with a long-term care rider. The policy allows you to access the death benefit while you’re alive to cover long-term care expenses, ensuring that your retirement planning is more flexible and comprehensive. If long-term care is never needed, your heirs receive the full death benefit tax-free.
How Does Hybrid Long-Term Care Work?
Let’s break down how hybrid long-term care insurance policies, like the MoneyGuard Fixed Advantage, function. Essentially, these policies allow you to fund long-term care costs while maintaining a life insurance benefit. Unlike traditional long-term care policies, where you might pay premiums indefinitely without ever utilizing the coverage, hybrid policies ensure that your money serves more than one purpose.
We’ll walk through some of the features of the MoneyGuard Fixed Advantage as an example. To start, after a 10-year premium payment period, you no longer need to make contributions. The policy is designed so that you will have access to long-term care benefits, and if you never need to use them, your heirs still receive the death benefit.
In our scenario of a 60-year-old woman in North Carolina, the premium for her MoneyGuard Fixed Advantage policy would be $9,422 per year for 10 years. By the time she reaches age 85, she would have access to $10,469 per month for long-term care, and her heirs would still receive a death benefit of $120,000 if she passed away without using the long-term care portion.
Flexibility of Hybrid Long-Term Care Insurance
A key feature of hybrid policies is the flexibility they offer. MoneyGuard Fixed Advantage, for example, allows policyholders to receive benefits for in-home care, assisted living, or nursing home care without any elimination period. This is a stark difference from traditional LTC policies, which often require a 90- or 120-day waiting period before benefits kick in. With a hybrid policy, once you qualify by proving that you require assistance with two out of six ADLs (activities of daily living), such as bathing or dressing, you can start receiving benefits immediately.
Additionally, the policy covers a wide array of services, including caregiver training and respite care, which provides relief for family members who are caring for a loved one. The flexibility to use the long-term care benefit as needed, whether for professional services or family caregiving, makes hybrid policies especially attractive.
Guaranteed Benefits and Inflation Protection
One of the common concerns with retirement planning is how inflation will erode the value of your savings over time. Hybrid long-term care policies address this by providing benefits that grow over time. The MoneyGuard Fixed Advantage policy we have been discussing grows at a compounded rate of 3%, meaning that by age 85, the long-term care benefit increases to over $10,000 per month.
This built-in inflation protection ensures that your long-term care benefits keep pace with rising healthcare costs, making these policies a more secure investment for your retirement. Furthermore, all long-term care benefits paid out from the policy are income tax-free, providing an additional financial advantage in retirement planning.
Legacy Protection: Leaving a Meaningful Inheritance
One of the major advantages of hybrid long-term care insurance is the legacy protection it offers. Traditional long-term care insurance can feel like a gamble—if you never use the coverage, your premiums are lost. Hybrid policies eliminate this worry by ensuring that if you don’t use the long-term care benefit, your heirs still receive a death benefit.
In our example, if the 60-year-old woman with a MoneyGuard Fixed Advantage policy doesn’t require long-term care, her heirs will receive $120,000 upon her death, ensuring that the money she invested in her policy benefits her family. This dual-purpose feature makes hybrid long-term care insurance a versatile tool for retirement planning, as it provides coverage for long-term care if you need it, and legacy protection if you don’t.
Comparing Hybrid Long-Term Care Insurance to Traditional LTC Policies
While hybrid policies have numerous benefits, it’s important to understand how they differ from traditional long-term care insurance. Traditional policies may offer unlimited benefits for long-term care, but they typically come with escalating premiums and the risk of paying into a policy for years without ever using it. Hybrid policies offer a fixed premium schedule, meaning you know exactly what you’re paying for, and you’re guaranteed either long-term care benefits or a life insurance payout.
The downside is that hybrid policies generally have a cap on the long-term care benefit, whereas some traditional policies offer unlimited coverage. However, many retirees find that a hybrid policy’s fixed premiums and dual benefits outweigh the potential for unlimited long-term care coverage, especially when paired with other retirement income sources.
Who Should Consider Hybrid Long-Term Care Insurance?
Hybrid long-term care insurance is not a one-size-fits-all solution, but it can be an excellent fit for those who want to protect themselves from the high costs of long-term care without the risks associated with traditional policies. It is particularly well-suited for individuals who want to:
Ensure they won’t lose the money they invest in a long-term care policy.
Have flexibility in how and where they receive care, whether at home or in a facility.
Protect their estate and leave a legacy for their heirs.
Benefit from a policy that combines life insurance and long-term care coverage.
If any of these factors are important to you, hybrid long-term care insurance could be a valuable component of your overall retirement plan.
Next Steps: Securing Your Retirement with Hybrid Long-Term Care
As you approach retirement, it’s critical to evaluate all of your options when it comes to long-term care. Hybrid long-term care insurance can offer a flexible, guaranteed solution that helps you secure your retirement while protecting your legacy. These policies ensure that your long-term care needs are covered while allowing you to leave a meaningful inheritance if you don’t use the coverage.
The discussion on this topic may have raised some questions. You can schedule a 15 minute call to start finding some answers. If we can’t answer all your questions in 15 minutes, we can certainly help guide you to some next steps.
We do love it when someone refers a family member or friend to us. Sometimes the question is, “How can we introduce them to you?” Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.
Here are this week’s items:
Portfolio Update: Murs and I have recorded our portfolio update for September 23, 2024
Retirement Long-Term Care Solutions – Hybrid Annuity
Radon Stancil and Murs Tariq discuss hybrid long-term care insurance, with a focus on the Equitrust Bridge annuity and how it serves as a powerful tool for retirement planning. They explore the benefits of using hybrid annuities, a strategy that combines retirement income with long-term care coverage…
Retirement Long-Term Care Solutions – Hybrid Annuity
Navigating the complexities of tax withholding in retirement can feel like venturing into uncharted territory. During your working years, taxes are often a distant concern. Employers handle withholding from each paycheck, ensuring that the process remains smooth and largely invisible to the employee. However, retirement changes this dynamic entirely…
As you approach retirement, one critical issue you may face is how to manage the rising costs of long-term care (LTC). It’s no secret that traditional long-term care insurance has become less popular due to its unpredictability and high cost. Many people hesitate to commit to policies where they pay hefty premiums for years, only to pass away without ever needing long-term care, and consequently, seeing none of that money return to them or their loved ones. This issue becomes even more frustrating when insurance companies hike premiums, leaving policyholders trapped in an unsustainable situation.
Luckily, there are better options. The idea of long-term care is evolving, and one innovative solution growing in popularity is the hybrid annuity with long-term care benefits. This product not only provides LTC coverage, but it also comes with certain guarantees and potential tax advantages. Whether you’re nearing retirement or well into it, hybrid annuities might be the bridge to a more secure future that not only covers potential health care needs but also allows you to preserve assets for your legacy. Let’s explore the concept in more detail and learn how these hybrid solutions, like the Equitrust Bridge annuity, can help you manage both retirement and long-term care effectively.
Why Traditional Long-Term Care Insurance is Losing Ground
In the past, the most common way to cover long-term care costs was through traditional LTC insurance. The logic was simple: you pay premiums during your working years, and in case you need help with daily activities (like bathing, eating, or moving around) in retirement, your LTC policy steps in. But things rarely stay simple. Many traditional LTC policies have downsides that make them less attractive today. For one, traditional long-term care insurance policies can be extremely expensive. Policyholders also risk paying premiums for decades, only to pass away without ever using the coverage.
Another significant problem is the fact that many insurance companies have raised their premiums. This financial burden can escalate over time, causing people to pay far more than they initially planned. Worse yet, the policy doesn’t provide any return on the premiums if care is never needed, which makes it feel like a wasted investment to many. As a result, more people are seeking alternative solutions, such as hybrid long-term care insurance, which offers more flexible options and guarantees.
Enter the Hybrid Annuity: What It Is and How It Works
A hybrid annuity is a combination of an annuity and long-term care insurance. With a hybrid annuity, you pay a single premium or series of premiums into the annuity. The annuity grows over time, offering a stream of income or a lump sum when needed. What sets hybrid annuities apart from traditional options is that they come with a long-term care rider that allows you to use the value of the annuity for long-term care expenses if necessary.
The Equitrust Bridge annuity, for example, is a hybrid annuity product designed to provide both an income stream and long-term care coverage. This annuity is particularly attractive because it has guaranteed underwriting, meaning nearly everyone who applies for the product can qualify, regardless of their health status. Traditional LTC policies often reject applicants due to health concerns. Hybrid long-term care annuities like the Equitrust Bridge provide coverage even to those with pre-existing conditions, albeit with different levels of benefits depending on underwriting results.
Key Features of the Equitrust Bridge Hybrid Annuity
The Equitrust Bridge annuity stands out for its flexibility and benefits, which make it an appealing option for retirement planning and long-term care. Here are some of its most important features:
Guaranteed Issue: The annuity offers coverage to virtually everyone. Although there is minimal underwriting involved, the product is designed so that anyone can qualify, even those who might not otherwise be able to secure traditional long-term care insurance.
Tax Advantages: One of the greatest advantages of the Equitrust Bridge annuity is its potential tax benefits, especially if you’re using non-qualified annuities (those funded with after-tax dollars). In many cases, the earnings on annuities are taxed as ordinary income, but with a hybrid LTC annuity, the funds used for long-term care can be accessed tax-free. This is a major plus for anyone with a significant amount of gain in their annuity and looking to offset long-term care costs.
Rider Charges and Coverage: Like many insurance products, the Equitrust Bridge comes with rider charges, which are fees for adding the long-term care benefit to the annuity. However, the product offers enhanced coverage ratios for long-term care benefits, which can increase the value of the original deposit by up to 300% or more, depending on age and underwriting class.
2% Growth on Long-Term Care Benefit: The long-term care benefit base grows annually by 2%, providing inflation protection. This means that the longer you wait to use the benefits, the more they grow, increasing your available long-term care coverage over time.
Vesting Schedule: The Equitrust Bridge annuity has a vesting schedule, meaning that full access to the LTC benefits takes time. For example, while some benefits are available in the first few years, the full long-term care benefit becomes available after about five years. This encourages long-term planning and ensures the annuity is utilized wisely.
Why Consider a Hybrid Long-Term Care Annuity?
So, why would someone choose a hybrid annuity over a traditional LTC policy or another type of retirement product? Here are a few reasons:
Flexibility: With a hybrid annuity, you’re not just buying insurance. You’re investing in a product that can generate income while simultaneously providing long-term care coverage if needed. If you don’t end up needing long-term care, you can still receive income from the annuity or pass on the remaining value to your heirs.
Tax Efficiency: One of the standout features of the Equitrust Bridge is the potential for tax-free withdrawals when used for long-term care. This is especially beneficial for those who have large, appreciated non-qualified annuities that would otherwise be subject to hefty taxes upon withdrawal.
Predictability: Hybrid long-term care products offer more stability than traditional LTC insurance, which can increase premiums or offer little value if unused. With a hybrid annuity, you can be confident that your investment is protected and will offer returns either in the form of long-term care benefits or income.
Guaranteed Issue: For many, the guaranteed issue aspect of hybrid annuities is crucial. Even if you have health issues, you can still secure long-term care coverage, something that might not be possible with traditional policies.
Long-Term Care Costs Are Rising — Are You Ready?
According to recent studies, the cost of long-term care continues to rise. Depending on where you live, expenses for a semi-private room in a nursing home can range from $3,000 to $8,000 per month or more. Preparing for this possibility is essential for anyone planning for a secure retirement. The hybrid annuity, with its combination of long-term care benefits and tax advantages, is an excellent way to ensure that you have the financial resources to manage these costs without depleting your savings.
As you think about how to plan for retirement and how to cover long-term care, consider the hybrid annuity as a valuable tool in your retirement portfolio. It can provide peace of mind, financial flexibility, and the potential to preserve your wealth, even in the face of future care needs.
If you have a question from this blog, we offer a complimentary phone call that you can schedule with us on our website. If we can’t answer all your questions in just 15 minutes, we’ll guide you to the next steps to find the answers you need.
