Hybrid policies have become a popular way to plan for the financial risks associated with long term care. By combining life insurance and long term care insurance into one product, hybrid policies add a level of flexibility to your investment that is not available with traditional long term care insurance products.
While it is possible to fund a hybrid policy with an ongoing annual premium, many hybrid products are designed to be funded with a large single premium. Depending on your age and health at the time of application, a fully funded hybrid policy with sufficient chronic illness benefits will require a single premium in the range of $50,000 - $150,000.
It can be a daunting proposition to commit a single premium payment of $100,000 to a hybrid policy, but the advantage is that your policy is completely paid-up, and the chronic illness benefits outlined in the policy are guaranteed. And many hybrid policies offer full or partial ‘return of premium’ options if you decide to back out.
But if you are interested in making the commitment, there are several ways that you can fund one of these policies:
This option only applies if you already have a life insurance policy that has built up some cash value. A 1035 exchange allows you to transfer the cash value from one life insurance policy to another, meaning that you can transfer money from a non-hybrid life insurance policy to a hybrid life insurance policy that includes long term care benefits. The exchange is tax-free, making this an ideal way to fund a new single premium hybrid policy.
Bank CDs, Money Market Accounts, Mutual Funds
Many people have money sitting in low-yielding bank CDs, money market accounts, or mutual funds that are subject to downside market risk. If you have money in any of these accounts that are not in an IRA or other qualified plan, you have to pay taxes on the interest, dividends, or capital gains.
Placing some of this money in a hybrid policy may be an attractive option because there will be no taxes owed on the money that you use for long term care or any withdrawals you make from the policy as long as your account value is equal to your original premium payment.
Stock Market Investments
If you are unsatisfied with your current investment portfolio, or if you would like to re-position some of your invested money to help plan for long term care expenses, a single premium hybrid policy may be a good idea for you.
One option is to use money from your stock market investments to fund an indexed universal life insurance policy that includes chronic illness benefits. This allows you to build cash value within the policy with the option to take LTC benefits if you become chronically ill in the future. By providing guaranteed minimum interest rates, these policies also eliminate the downside risk of stock market investments.
If you are over the age of 70 ½, by law you must start taking the mandatory distribution from your IRA. These distributions will not be able to fully fund a hybrid policy, but they can help if you are trying to pool together money to purchase a policy.
Another possibility is to transfer money from an existing IRA to an immediate annuity that will fund annual payments on a hybrid policy. This essentially functions in a similar way to the single premium hybrid policy.
Even if you are under the age for mandatory distributions, you can use a combination of an IRA annuity with a hybrid policy to fund the coverage and keep your tax liability to a minimum and receive the long term care benefits tax free.
Investing in a single premium hybrid policy can be a significant financial commitment. However, if you can pool money from savings or other investments and assets, hybrid policies can be a great way to plan for long term care expenses and make sure that you are covered later in life.
Every hybrid long term care insurance product is different in the features they offer, so it’s important to work with a knowledgeable agent who can compare the different options and provide tailor-made recommendations for each individual client.
At Hybrid Policy Advisor, we strive to provide expert guidance throughout the entire application process to make sure our clients are able to find the best long term care solutions available.
If you would like to learn more, please call 1-866-365-6558, or click the button below to send us a message.