Planning for healthcare costs in retirement often feels like trying to hit a moving target. You know expenses are coming, but you don’t know how much, when, or for how long. That’s why long-term care insurance traditionally plays a role in retirement planning. However, traditional policies have lost appeal in recent years.

Enter hybrid life and long-term care policies.

These products are designed to address two risks simultaneously: the need for long-term care and the desire to leave a financial legacy.

Do they make sense for you? How do they compare to standalone policies?

The challenge with traditional long-term care insurance

For years, long-term care (LTC) insurance seemed like a smart way to protect retirement savings from the high cost of care. Whether you needed help with bathing, dressing, or managing medications, LTC insurance could cover some of those costs.

The problem? Premiums for these policies are not guaranteed. Many policyholders saw sharp increases over time. And if you never needed long-term care, your premiums were gone.

That’s a hard sell.

What hybrid policies offer

Hybrid life and LTC insurance policies combine permanent life insurance with a long-term care benefit. If you need care, the policy provides funds to cover expenses. If you never need care, your beneficiaries receive a death benefit.

Some hybrids allow you to accelerate the death benefit to cover care costs. Others offer an added rider that creates a separate long-term care benefit on top of the life insurance.

Most hybrids are funded with a single premium or a limited number of payments over a few years. Once paid, the premiums are typically locked in.

That predictability is a major selling point.

Why hybrids are gaining traction

Hybrid policies have grown in popularity for several reasons:

First, modern LTC policies offer predictable costs, with typically fixed premiums, providing peace of mind in budgeting for future expenses.

Second, these policies provide value even if care is never needed, ensuring your money isn't simply “wasted” on premiums.

Third, the underwriting process is simple. Some policies only require basic health screenings, making it easier to qualify.

Finally, some policies accumulate cash value over time, which can be accessed for other needs, adding additional financial flexibility.

How hybrid benefits are triggered

To use the long-term care benefit, you must generally meet the same criteria used by standalone policies. That means being unable to perform at least two activities of daily living, like eating or dressing, or having cognitive impairment.

Once triggered, the policy begins to pay benefits through reimbursement or indemnity (a set monthly payout). Some policies require proof of actual expenses, while others pay the benefit regardless.

What to watch out for

These policies are not one-size-fits-all. Here are a few things to consider:

Many hybrid polices require a large lump sum, often totaling $75,000 or more.

The internal rate of return may be modest compared to other investment options.

Flexibility, once the policy is established, is limited. Making changes can be difficult or expensive.

The complex structure of these investments can be confusing, so it's advisable to work with an advisor who understands the nuances involved.

When a hybrid policy might make sense

These policies are often a good fit for retirees who:

• Have significant assets and want to self-insure but still hedge risk.
• Are concerned about long-term care but hesitant to buy standalone coverage.
• Want to leave a financial legacy but also protect against care costs.
• Value premium stability over time.

Hybrids can work well for people with cash sitting in low-yielding accounts or CDs.

Tax considerations

Hybrid policies often come with favorable tax treatment.

If the policy is structured correctly, the long-term care benefits are typically tax-free under IRS, and death benefits are generally tax-free as well.

If the policy includes a return-of-premium feature, you may be able to cancel it and get some or all of your money back.

Still, taxes can get complicated, especially if you use funds from a retirement account to purchase the policy. Consult a qualified tax advisor before making a decision.

What about couples?

Some insurers offer joint hybrid policies that cover both spouses. These can be cost-effective and provide shared benefits. If one spouse never uses the care benefit, the other can use the full amount. If neither spouse uses it, the death benefit passes to heirs.

Joint policies are not right for everyone, but they’re worth exploring if you and your spouse plan together.

Alternatives to consider

Before committing to a hybrid policy, compare your options.

Traditional long-term care insurance may be a better option, especially if purchased earlier in life.

Self-funding works for those with ample assets and a high risk tolerance.

Annuities with LTC riders are another hybrid approach, combining guaranteed income with care protection.

Health savings accounts (HSAs) can also play a role in funding future care costs.

Each option has trade-offs. The right choice depends on your goals, health, wealth, and tolerance for uncertainty.

Final thoughts

Hybrid life and long-term care insurance policies aren’t for everyone. But for the right retiree, they can solve a key challenge: how to protect yourself from the cost of care without wasting your money if you never need it.

They’re not simple products, and they can be expensive. But they offer something many retirees crave: peace of mind.