A Closer Look at Hybrid or “Asset-Based” Long-Term Care Insurance
Most people hope they’ll never need long-term care, but about 7 in 10 retirees will. While the average LTC need may be manageable, an extended stay in memory care or around-the-clock care at home or in a facility can blow up a financial plan. Costs for nursing home care can easily exceed $7,000–$10,000 monthly, and Medicare doesn’t cover it.
In a recent episode of the Make the Most of Your Money podcast, we spoke with insurance specialist Roger Cantu about protecting your family and finances from the emotional and financial strain of a long-term care event.
One key takeaway? Everyone has a long-term care plan—whether it’s intentional or not. If you haven’t created a strategy, you’re defaulting to self-funding, which can quickly deplete your savings and create stress for your spouse and children. One solution is a hybrid or asset-based long-term care insurance policy, which overcomes some key issues with traditional LTC insurance policies.
This type of LTC policy is worth a closer look.
Why LTC Planning Matters
Coverage gaps: Medicare doesn’t pay for most LTC needs. Medicaid will, but only after you deplete your assets (and even then, you won’t have much choice in where you go).
Financial risk: Care can cost hundreds of thousands of dollars over several years. You will want to either set assets to self-fund against this risk or purchase insurance (or both).
Family impact: Without a plan, caregiving often falls to loved ones.
Emotional burden: LTC decisions often come at the worst times—amid illness and family strain.
Traditional Long Term Care Insurance
Most people are familiar with traditional LTC policies—and many are wary of them, with good reason. Years ago, insurers underpriced policies based on overly optimistic assumptions, only to face financial strain as claims rose and interest rates fell. This led to steep premium hikes for existing policyholders, sometimes multiple times their original costs.
Understandably, that gave LTC insurance a bad name. But the need to plan for long-term care hasn’t gone away. With the oldest baby boomers turning 80 next year, it’s worth a fresh look for yourself and your loved ones.
While traditional LTC insurance has evolved and is now more conservatively priced (though still subject to future premium increases), hybrid or asset-based policies offer a compelling alternative. These policies solve many of the issues associated with traditional LTC—offering guaranteed fixed premiums and a death benefit if care isn’t needed. It’s no longer “use it or lose it.”
One Solution: Hybrid or Asset-based LTC Insurance
Asset-based long-term care policies are gaining popularity because they solve two key issues with traditional insurance: use it or lose it and unexpected premium increases.
A hybrid policy combines life insurance (or an annuity) with long-term care benefits. If you need care, the policy pays. If not, your heirs receive a death benefit. And if you cancel, you may get your money back.
Think of it as: Live, Die, or Quit.
Live: You get LTC benefits.
Die: Your heirs get the death benefit.
Quit: You get a refund or cash value.
These policies offer level premiums, which are guaranteed not to increase, unlike traditional long-term care insurance products, which can raise premiums on a group if the carrier experiences higher-than-expected claims or adverse returns.
That said, it's important not to view insurance as an investment vehicle. If you never need care, yes—you likely would have been better off investing that money in the market. But insurance isn’t about maximizing returns; it’s about mitigating the financial and emotional impact of an adverse event.
It's peace of mind and protection, not a growth strategy.
How Asset-Based LTC Policies Work
Asset-based long-term care (LTC) policies combine the features of a whole life insurance policy or annuity with a traditional LTC benefit. These plans offer a death benefit that can also be used for LTC if needed, providing liquidity without the “use it or lose it” risk.
If care is needed, the policy draws first from the life insurance value, known as an Acceleration of Benefits (AOB) period. Once the life insurance benefit is exhausted, a Continuation of Benefits (COB) rider activates, providing additional LTC coverage—sometimes for a set number of years, or even for life.
Policies can be written on a single or joint life, where either (or both) spouses can draw on the LTC benefit if needed. Other options include return of premium and inflation riders to help your benefit keep up with inflation (for an added cost).
Many of these policies pay benefits on an indemnity basis, meaning you receive a fixed monthly benefit once you qualify, without needing to submit receipts or justify actual expenses.
When Should You Start Looking?
The ideal time to start exploring your options is usually between the ages of 50 and 65. At that stage:
You’re likely still healthy enough to qualify for coverage at favorable rates.
You’re nearing or entering retirement and beginning to think more seriously about long-term financial security.
You can lock in pricing before age-related health changes make coverage more difficult or expensive.
Waiting too long can limit your options or make coverage unavailable altogether.
How to Pay for a Policy
Hybrid policies offer flexibility when it comes to funding. You can choose an approach that fits your broader financial plan:
Single premium (lump sum): Often paid from cash or a brokerage account.
10-pay (spread over 10 years): A good fit if you prefer to preserve liquidity.
Tax-free exchange from existing whole life policy or annuity: Known as a 1035 exchange, this is an excellent option for repurposing an existing policy to help cover long-term care.
IRA-funded LTC (via a qualified LTC annuity): Certain structures allow you to tap IRA dollars tax-efficiently, though this requires careful planning and the right product.
Getting Help: Work With the Right Experts
Exploring long-term care insurance doesn’t mean navigating a sea of products alone. The best approach is to work with an independent insurance broker who can compare policies from multiple carriers, not just one company’s offerings.
When that broker collaborates with your fee-only financial advisor, you can better understand how different options fit into your retirement plan. This coordinated approach ensures you choose a policy that provides the right coverage and complements your long-term goals.
Bottom Line
Long-term care planning is about protecting your independence, your spouse, and your family. Don’t wait until you’re in crisis mode to have the conversation.
Let’s talk about how to build a plan that gives you confidence, whether that means setting aside funds or exploring insurance solutions like asset-based LTC.
👉 Want to dive deeper? Listen to the full episode: Long-Term Care with Roger Cantu
👉 To understand the range and probabilities of different LTC outcomes, check out my previous post on Planning for Long Term Care - by Colin Page
