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One of the reasons that many people dislike insurance is the perception that premiums disappear into thin air – and are almost never seen again in the form of a benefit to the consumer. 

Imagine if there were an insurance product that took care of this problem. In the case of long term care insurance, what if the client could get all of their money back if long term care wasn’t needed? 

Long term care insurance hybrid policies take care of this problem. They combine long term care insurance with a base insurance policy that has a cash value component: Normally the base policy is either life insurance or (less frequently) an annuity.

Let’s take a look at a typical life insurance hybrid policy. The insured typically deposits a sum of money into the policy (there are limited pay and full-pay options with some companies). If the insured dies, just like any other life insurance policy, the policy pays the death benefit. 

However, if the insured needs long term care, there is normally a substantially greater amount available for care. In this case, the insured ‘won’ – since the payout was substantially higher than their premium payments and the amount of life insurance bought.

If some small amount of long term care is needed before the insured passes away, the death benefit is reduced to account for the long term care benefit paid.

It’s important to know that all hybrid policies are not created equally. The amount available to pay for care is normally limited each month and is often a percentage of the death benefit. Be sure to understand how a particular hybrid policy compares to a traditional long term care policy, especially in regard to inflation protection. 

Hybrid policies can make it much easier for someone to purchase long term care protection. They know that no matter what happens their money won’t ‘disappear.’ 

One more thing – existing life insurance policies (or annuities) can be exchanged in a tax-free manner (a 1035 exchange) to use existing policy values to purchase long term care protection without having to write a check! This can be a very appealing option to clients who already own an old cash value life policy or an annuity.