The long-term care planning problem

Long-term care is consistently one of the most underestimated costs in retirement planning. In New Jersey, nursing home care averages well over $100,000 per year, and assisted living communities in South Jersey range from $60,000 to over $100,000 annually. A couple where one or both partners need care for several years faces a potential financial exposure of several hundred thousand dollars.

For decades, the standard solution was traditional long-term care insurance — a policy that pays a daily or monthly benefit when you need care. But the traditional LTC insurance market has contracted significantly. Premiums have risen sharply, many carriers have exited the market, and new policies are harder to obtain and more expensive than they were fifteen years ago.

What a hybrid policy is

A hybrid life and long-term care policy combines a permanent life insurance policy with a long-term care benefit rider. The basic structure:

• You fund the policy with a lump sum or a series of premium payments over time
• If you need long-term care, the policy pays a benefit to cover care costs — drawing from the death benefit
• If you never need long-term care, your beneficiaries receive the death benefit when you pass
• If you use the policy for LTC but do not exhaust the full benefit, your beneficiaries receive the remaining death benefit

The core appeal of the hybrid structure is the elimination of the “use it or lose it” objection to traditional LTC insurance. With a traditional policy, if you never need care, you receive no benefit. With a hybrid policy, the dollars find their way to you or your family either way.

How hybrid policies compare to traditional LTC insurance

Neither approach is universally better. Key differences:

• Premium certainty: hybrid policies typically have fixed, guaranteed premiums; traditional LTC policies have historically been subject to rate increases
• Underwriting: hybrid policies often have less stringent health underwriting than traditional LTC policies, making them accessible to more applicants
• Benefit structure: traditional LTC policies often provide longer benefit periods for a given premium; hybrid policies trade some benefit depth for the death benefit guarantee
• Funding: hybrid policies are often purchased with a lump sum from non-retirement savings (such as a CD, savings account, or non-qualified investment account), which can produce tax-advantaged LTC benefits; traditional LTC is typically premium-paid
• Tax treatment: long-term care benefits received from most qualified policies are generally tax-free regardless of type

Who hybrid LTC policies tend to fit

Based on our experience working with South Jersey families, hybrid policies tend to be a strong fit for:

• Clients who have a lump sum of non-retirement assets (cash, CDs, taxable brokerage accounts) that are not earning a meaningful return and could be repositioned
• Clients who want protection against LTC costs but are unwilling to pay premiums that may never be used
• Clients with health conditions that make traditional LTC insurance difficult to obtain
• Couples who want to protect the healthy spouse’s assets if the other needs extended care
• Clients with estate planning goals where a death benefit serves a secondary purpose (legacy, equalization among heirs)

The WealthCare perspective

Marty Higgins holds the Chartered Life Underwriter (CLU®) designation — a credential specific to advanced life and long-term care insurance planning. At Family Wealth Management, we treat long-term care planning as a component of the retirement income plan, not a separate insurance transaction. The question is never simply “which policy” — it is where long-term care risk fits within your overall income plan, your retirement account strategy, and your estate goals.

For clients who self-insure (setting aside a pool of assets for potential care costs without a policy), we help size that reserve and coordinate it with the rest of the WealthCare plan.

What to do next

If long-term care planning is something you have been meaning to address — or if you already have a traditional LTC policy and want to know whether it still makes sense to keep it — contact our team at (856) 988-7722 or familywealthadvisory.com.