Hybrid life and long-term care, and living benefits
Life insurance or annuities that can also help pay for long-term care or serious illness.
About a 5-minute read
What it is
Long-term care, such as help at home, assisted living or a nursing facility, can be very expensive and generally isn't covered by Medicare.
Hybrid (also called linked-benefit) policies combine life insurance or an annuity with long-term care benefits: if you need care, you can use benefits to pay for it; if you never do, a death benefit goes to your beneficiaries.
Separately, many life insurance policies offer living benefits riders that let you access part of the death benefit early if you become terminally, chronically or critically ill.
Who it's often for
- People who want protection against long-term care costs but don't want "use it or lose it" traditional long-term care insurance
- People who want to reposition existing savings or an older policy (sometimes through a 1035 exchange)
- Families who want to protect assets and ease the burden on children
How it works
Scene 1
The flow at a glance
If you need care
If you never need care
Living benefits riders
- 1You buy a life insurance policy or annuity with long-term care benefits, often with a single premium or a limited number of payments.
- 2If you can't perform a set number of activities of daily living (such as bathing or dressing) or have a severe cognitive impairment, as certified by a licensed health care practitioner, you can receive monthly benefits for care, usually after a waiting (elimination) period.
- 3Benefits used for care reduce the death benefit.
- 4If you never need care, your beneficiaries receive the death benefit. Some policies return premiums if you change your mind, subject to terms.
Living benefits riders vs long-term care coverage
A long-term care rider is designed to pay for care and must meet specific tax and insurance rules. Chronic illness riders and other accelerated benefit riders may pay a discounted portion of the death benefit, may have different qualification rules, and aren't the same as long-term care insurance. Know which one you're buying.
What to watch out for
- Costs and underwriting vary widely.
- Check the benefit triggers, the elimination period, the monthly benefit maximum, how long benefits last, and whether benefits grow with inflation.
- Using benefits reduces what your heirs receive.
- Some riders pay a discounted amount.
- Tax treatment depends on the type of rider.
- Medicaid planning is complex and state-specific.
Questions to ask before moving forward
- How much care could this pay for, per month and in total?
- Is this a long-term care rider or a chronic illness rider?
- Is there inflation protection?
- What's the elimination period?
- What happens to the death benefit if I use care benefits?
- Can I get my premium back?
Who else should be involved
Your CPA, and an elder law attorney for Medicaid or estate questions.
Related concepts and services
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Book a ConversationAdvanced concepts are described in general, simplified terms for education only. They involve legal, tax and financial considerations that depend on your situation and on current law, which can change. IAM Money Management does not provide tax or legal advice; consult your attorney and tax professional before implementing any strategy. Life insurance and annuity products are issued by insurance carriers, and features, costs and guarantees vary by carrier, product and state. Guarantees are backed by the claims-paying ability of the issuing carrier.