The desire to insure against long-term care risk competes with the need to insure against the many other risks we face in life, and many people decide that purchasing long-term care insurance is not a viable option. This outcome is more likely to the degree that some people are in denial about or have misinformation about their potential long-term care needs or the degree to which government programs will pay for long-term care.
One potential appeal of hybrids may be that they allow the consumer to purchase one policy that insures against two risks, even though coverage is likely to be limited should both risks occur. Hybrid insurance products may therefore present one way to achieve a partial and second-best solution to the problem of many important risks against which to insure, but limited funds available to do so. By incorporating another insurance product that is perceived to have value, hybrids may also overcome some psychological barriers for those consumers who may feel that they have “lost” or “wasted” all of their premium payments if they do not make claims against their long-term care insurance until decades after the initial purchase of the policy, if at all. And some hybrid products may also have a benefit of encouraging purchase of long-term care insurance earlier in life, when one is usually less likely to be denied coverage.
Nevertheless, it is highly doubtful that insurance hybrids alone can solve the basic societal problem of how to pool long-term care risks. For one, hybrid insurance products with long-term care insurance do not offer substantial pure economic appeal. It appears that, at best, only small premium savings may be possible by combining insurance products into a hybrid.
The few long-term care insurance hybrids with disability insurance are worthy of further study. Such hybrids can allow the consumer to evaluate in a coherent process the potential needs to replace income lost due to disability as well as to pay for services that may be needed as a result of developing a disability, and then purchase a single insurance product covering at least part of the combined risk.
Hybrid insurance products will require a better educated consumer in order to make the financial decision that is best for him or her. Providing government protections to consumers in the face of increasingly complex decisions regarding long-term care insurance is a real need that must be addressed.
In Brief prepared by Marc P. Freiman, Ph.D., AARP Public Policy Institute
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