The Complete Guide to Asset-Based Long-Term Care Insurance

Updated · Oct 17, 2022

Asset-based long-term care (LTC) combines the best features of traditional LTC policies and life insurance.

It gives you peace of mind that you can cover the cost of care. And if you don’t need it, your funds still won’t go to waste. You can leave an inheritance to your family.

But as good as it sounds, this type of insurance is not suitable for everyone.

In this article, we discuss everything there is to know about asset-based policies. Consider all the pros and cons of this long-term care insurance and see if it's the right solution for your needs.

Asset-Based Long-Term Care Definition

Asset-based or hybrid long-term care insurance combines features of traditional long-term care insurance with whole life insurance or annuities.

This means you can pay for long-term care services and leave something behind for your family.

Let’s see how that works in more detail.

How Does Asset-Based Long-Term Care Work

Asset-based policies work like standard LTC insurance.

You pay premiums for a set period of time. If you need long-term care in the meantime, the policy will cover some or all of your expenses.

The difference is that asset-based care doesn’t let your funds go to waste if you don’t use them.

Instead, the policy pays out a death benefit to your beneficiaries.

How to Pay for Long-Term Care

If you purchase an annuity with a long-term care rider, you will have to make an upfront investment.

With hybrid life insurance, you may encounter different payment methods—upfront, installments, or both.

You can fund the plan with different types of assets.

For example, you can use your savings, retirement account, or home equity. Even existing life insurance is an asset you can use to fund your new policy.

As long as you follow the agreed-upon terms, you can claim the benefit at any time.

If it’s for long-term care, it’ll be tax-free. Otherwise, there might be charges.

Here’s what they are.

What If You Don’t Need Long-Term Care?

This is one of the biggest advantages of asset-based long-term care insurance. If you never need the money, your beneficiaries will receive it as a death benefit.

With some policies, you can cash out your funds for other purposes, too. For example, you might want to invest the money elsewhere.

But keep in mind that you will most likely have to pay a surrender fee.

Companies usually charge a percentage of the policy's value. If you have a lot of coverage, the penalty could be costly.

Pros and Cons of Hybrid Long-Term Care Insurance

Asset-based insurance solves the biggest downside of traditional LTC policies—losing your money if you don’t need long-term care.

But that’s not the only benefit.

Other perks include:

  • You don’t have to choose between using your assets for long-term care or leaving an inheritance—you can do both.
  • It comes with living benefits. This means you can use the money while you’re still alive.
  • Whether the funds from your insurance go for long-term care or a death benefit, they come with tax benefits.

That said, asset-based LTC insurance has some notable drawbacks:

  • High cost: Asset-based plans are typically more expensive than traditional long-term care insurance. You may have to pay a lot of money upfront to buy a hybrid insurance policy.
  • Limited investment gains: For the same amount of money, insurance companies can offer you very different benefits. You could get better returns if you invest the same amount instead. 

That said, investments are always riskier than insurance.

If you’re looking for security and protection for you and your family, a hybrid policy is the best choice.

Wrap Up

Asset-based long-term care combines the features of traditional LTC coverage with life insurance or annuities.

These policies are excellent for people who are concerned about the costs of long-term care but who also want to leave a legacy to their loved ones.

If you can afford it, it can be a great way to increase your retirement savings.

Aleksandra Yosifova
Aleksandra Yosifova

With an eye for research, Aleksandra is determined to always get to the bottom of things. If there’s a glitch in the system, she’ll find it and make sure you know about it.