Hybrid Long-Term Care Policies

by: Smith and Howard Wealth Management

As traditional Long-Term Care (LTC) insurance becomes increasingly expensive and underwriting continues to get more difficult, Hybrid LTC policies that bundle a life insurance or annuity policy with LTC coverage are finding wider appeal.


The primary appeal of hybrid policies is the simple fact that, unlike traditional LTC insurance policies, the premiums are guaranteed and cannot be increased in the future. Given some of the extraordinarily large premium increases that traditional LTC coverage has experienced in recent years, a cost guarantee is remarkably reassuring.

Another benefit is that a death benefit is paid to your heirs, whether you end up needing LTC or not, unlike traditional LTC premiums where you lost premiums paid at death.

Moreover, underwriting requirements are typically less stringent than traditional LTC policies and policies funded with an annuity, a tax-deferred vehicle, lose the tax obligation on the gains.

Understanding Hybrid LTC Policies

The basic concept of hybrid LTC policies is fairly straightforward:

  • bundle life insurance and long-term care insurance (hybrid life/LTC) into a single policy, or
  • pair an annuity and long-term care insurance (annuity/LTC) into a single policy.

Typically funded with a single lump sum premium, a hybrid policy provides the usual benefits associated with its life or annuity policy base, along with the available benefits of a long-term care insurance policy, with all the associated costs deducted directly from the cash value of the policy without incurring any tax consequences. For those with buyer’s remorse, some companies even offer a return of premium after a couple of years.

The lump sum premium to fund the hybrid policy can come from cash or can be transferred from existing cash value life insurance or annuity through a 1035 exchange.  As people near retirement, many have acquired cash value life insurance policies, but find they no longer have a strong need for life insurance or have an unwanted annuity with large gains. This can create the perfect funding vehicles for hybrid LTC policies.

How we can help

Smith and Howard Wealth Management’s wealth planners have years of experience helping our clients weigh the risks and benefits of various insurance options. And because we spend significant time on the front end with our clients developing a financial plan that considers their entire financial situation as well as their short and long-term goals, we are in an especially good position to help them make a decision that best suits their situation. Moreover, we do not sell any products, so our views are strictly objective and in the best interest of our clients. Among the considerations we review and discuss with you are:

  • Whether you need to consider LTC coverage
  • Whether you are able to self-insure
  • A cost vs. benefit view of each (and any) LTC policy specific to each person’s situation
  • If the timing is right for purchase of LTC coverage (age, health, financial status, etc.)
  • Whether investments may provide adequate return to fund long-term care without a policy
  • If a 1035 exchange makes sense as a funding option verses a lump sum


The bottom line is that in today’s marketplace, there are some opportunities to effectively use hybrid life/LTC and annuity/LTC policies, but the evaluation is complex and requires knowledge, care and attention to the individual’s personal situation prior to making a decision. We invite you to call us at 404-874-6244. You might also want to read our overview of traditional long-term care insurance here.