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The majority of people buying long term care protection today opt for some form of hybrid or linked benefit insurance. These are usually life insurance policies that include a rider providing long term care benefits if needed.

Few consumers know that there are two versions of hybrid fonts. Each adheres to a specific tax code that spells out what the policy is and what it is not. Differences may not become apparent until the insured requires care. This is when they can tell the difference between receiving early benefits and not.

What are the two different planes?

When it comes to hybrid long-term care policies, there are two internal tax codes (IRCs) that define the policies. The first is IRC Section 7702B. This section applies to policies defined as long term care insurance.

The second is IRC Section 101(g). This section defines what coverage is considered chronic illness coverage. Indeed, the code specifically states that 101(g) policies may NOT be marketed in any way as long-term care coverage. You won’t find the words “long term care” in the insurance company’s promotional material. You will probably see references to nursing home care, assisted living, home care, but not the words long term care.

Why should potential buyers understand the difference?

According to the American Association for Long-Term Care Insurance, approximately 60% of new hybrid policies purchased in 2021 were IRC Section 101(g) compliant. Financial advisors and insurance agents often find these plans preferable to selling because they do not require advisors to complete specific training and meet continuing education requirements.

Each type of hybrid long term care insurance plan has advantages and disadvantages. Not asking what kind of plan you’re buying will have the biggest implication if you ultimately need eligible care. This probably won’t happen for some time, usually in 10 years or more. However, that’s why you’re buying this coverage in the first place.

Possible Benefit Differences and Why They Matter

All provisions of the life insurance policy are contractually governed and set forth in the policy. It is a formal contract between the insurance company and the policyholder. Typically, you won’t get a copy until you’ve applied, been approved, and generally paid the premium. We’ll share a way to get a copy before you buy in a moment.

On the plus side, chronic condition 101(g) riders will generally pay benefits without considering the actual costs of care. Their indemnity or cash formula can be advantageous over the reimbursement models used by many, but not all, 7702B long term care insurance riders.

The major drawback of 101(g) plans is their definition as a chronic condition rider. Simply put, there may be situations where one needs care which we generally define as long term care. Unfortunately, these situations do not meet the definitions of chronic illnesses and therefore do not allow the insured to receive benefits.

Top Ways to Get the Best Hybrid Long Term Care Coverage

Always ask which internal tax code the recommended policy meets. One way to really see what you’re about to buy is to request a specimen policy. This document, often 50 pages or more, is a generic version of the policy itself. The insurance advisor or agent can easily provide a PDF if you request one.

Unlike other forms of insurance where switching from one policy to another can be advantageous, it is almost never cost effective to switch from one hybrid policy to another. For this reason, comparing multiple plans before buying can save you money. This can definitely help you get the best hybrid long term care coverage for your future needs.

The American Association for Long-Term Care Insurance can connect you with a specialist appointed by several traditional and hybrid insurance companies. To learn more, call the organization at 818-597-3227 or visit their website.

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