Hybrid policies replacing traditional term life insurance

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Hybrid policies redfine life insurnce. Image: alancleaver_2000//Flickr/CC BY-SA

The nature of long-term care and life insurance policies has changed rapidly in these uncertain financial times.  Many consumers are reluctant to put up large amounts of money for future benefits, especially when those  benefits may never become necessary.  The insurance industry has countered this trend by offering combination products that blend long-term-care with traditional life insurance.

Long-term care option

Generally blended life insurance policies utilize universal life, in which a portion of the death benefit may be used early to help pay for long-term care should it become necessary.  These hybrid policies have been available for a while but have recently been gaining popularity.  A hybrid product, combining two products into one, sounds attractive to many consumers. If the long-term care never becomes necessary, the policy holder may still benefit from the life insurance.

Traditional policies in decline

Sales of the hybrid policies more than doubled in 2010, according to Gebworth Financial Inc.  By contrast, the sales of traditional long-term-care insurance has plummeted by nearly 25 percent over the last five years.

“Most people who buy hybrid insurance are not buying it because they want life insurance,” said John Ryan, a Colorado-based broker.  “They’re buying it because they need long-term-care insurance, and the sales pitch that you can get your money back no matter what is pretty compelling,”

Retired class growing rapidly

LeadingAge, a Washington-based lobbying group for retirement homes, claims that almost 69 percent of Americans turning 65 today will need long-term care at some point and that their numbers will likely double by 2040.

How hybrid policies work

There are many versions of hybrid insurance policies available, and the details vary greatly.  Generally, however, hybrid life insurance policies offer the consumer a cash-value life insurance policy and the option to use a portion of that policy for long-term care benefits. If the long-term care benefits are used, however, the value of the death benefits will be reduced.


While a two-for-one product sounds attractive, there are many variables to consider.  Generally there is less wiggle room with a combined product. Hybrid products often don’t cover home care or adjustments for inflation. Often they are too specialized in what types of long-term care they will or will not cover.  It is impossible to predict future care needs, and often that is exactly what the insurance companies expect you to do.  While purchasing a hybrid product is cheaper than purchasing two different policies, it is also typically more expensive than buying a dedicated long-term care policy.

Be cautious and informed

As with any large investment, the consumer needs to be cautious and well-informed when shopping for these products.  Advice from an impartial financial adviser is always a good idea.


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