Wealth column: What You Need to Know before Purchasing a Hybrid Life Insurance Policy

Alton Brown, the renowned author and Food Network star, is notorious for hating kitchen gadgets that he refers to as "unitaskers."

These are kitchen gadgets that essentially have a single purpose and have little utility doing anything else. In other words, these gadgets lack the flexibility to take care of multiple tasks.

In the insurance world, many of the products could be classified as unitaskers. One insurance product that epitomizes the idea of flexibility is hybrid life insurance. Hybrid life insurance combines both life insurance and long-term care insurance into a single policy.

It's a relatively new product, but it's one that we seem to hear more and more questions about. To help address any questions you may have-or to provide an overview of these policies if this is the first time you've heard about them-here are the key things you should know before purchasing a hybrid policy.

Hybrid Policy Overview

One of the biggest complaints people have about traditional long-term care coverage is that if they die without needing care, they will feel like they've essentially wasted the money they spent on premiums. A hybrid policy addresses that criticism by combining a permanent life insurance element alongside the long-term care protection.

Here's how it works: Imagine you purchase a hybrid policy with $200,000 in benefits. If you die without needing any long-term care, that death benefit (in addition to any cash value that the

policy may have accumulated) will be paid out to your beneficiaries. However, if you end up needing care, you can transform the death benefits in your hybrid policy into cash to pay for your long-term care medical expenses, thereby reducing the amount of death benefits that may be left to your beneficiaries.

Two Potential Downsides

The flexibility and the essential guarantee that you'll receive a benefit of the policy one way or the other are certainly powerful advantages that make hybrid policies attractive options. These policies, however, do have a couple of disadvantages that you do need to consider.

First, you're probably going to get less 'bang' in benefits from the bucks you spend on premiums. Imagine you're going to spend $X in premiums on a life or long-term care policy. The

amount of benefits you receive for that amount paid in premiums is likely to be higher than what you would receive from a hybrid policy at the same cost. So while a hybrid policy is good at accomplishing different things, there are likely going to be more cost- efficient long-term care and life insurance policies on the market.

Second, these hybrid policies do not qualify for the Minnesota Long-Term Care Partnership program.

Long-term care policies that do qualify allow you to increase the amount of assets that are exempted when determining eligibility for medical assistance. For example, a long-term care policy with $100,000 in benefits that qualifies for the partnership would allow you to exempt $100,000 of your assets if you need to apply for medical assistance.

We suspect that, as they become better known, hybrid policies will become an increasingly popular option among consumers. While there are some great benefits that hybrid policies

provide, it's important to weigh the costs against those benefits before ultimately deciding if a hybrid policy is right for you and your family.