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The duration and level of long-term care a person may need varies widely and often changes over time, according to the Administration for Community Living (ACL). On average, someone turning 65 in 2020 had almost a 70% chance of needing some type of long-term care services or supports at some point in their remaining years. Women typically need care longer than men – 3.7 years versus 2.2 years. About one-third of people who were 65 in 2020 may never need long-term care, but roughly 20% will require it for more than five years, according to the ACL. When it comes to paying for long-term care, Americans use a mix of strategies. Some pay out of pocket, others qualify for Medicaid, and a small share purchase either a stand-alone long-term care insurance policy or a hybrid policy that combines long-term care benefits with life insurance or an annuity. The most recent data show that relatively few Americans have private long-term care coverage – roughly 7.5 million individuals in total, including roughly 900,000 with hybrid policies. That means most people will have to shoulder substantial costs on their own. Those costs vary by care type and location, but the latest national median annual costs (based on 2024–2025 surveys) are: Given those costs, deciding how to manage and mitigate the financial risk of long-term care is critical. But should you buy a traditional long-term care insurance policy or a hybrid product that blends life insurance or an annuity with long-term care benefits? As part of our ongoing series Man vs. Machine, TheStreet posed that very question (How would I go about deciding whether to purchase a stand-alone long-term care insurance policy versus a hybrid long-term care/annuity or hybrid long-term care/life insurance policy?) to ChatGPT, then asked a subject matter expert to critique the AI response. What did AI get right? What did it get wrong? And what did it leave out? Below is ChatGPT’s response, followed by our expert’s critique. Choosing a long-term care option hinges on five considerations That’s an excellent and very timely question — and it’s one many advisers say retirees and pre-retirees find confusing. The decision between a traditional (stand-alone) long-term care insurance (LTCi) policy and a hybrid policy (life insurance + LTC or annuity + LTC) hinges on five key considerations: cost structure, flexibility, coverage guarantees, liquidity, and tax implications. Here’s how to think through the trade-offs like an adviser would: 1. Start with your primary goal If your goal is protection against the high cost of long-term care, a stand-alone LTC policy generally provides the most robust coverage per premium dollar. If you also want to preserve or transfer wealth, or dislike the “use it or lose it” nature of traditional LTC, a hybrid policy may appeal more. As David Blanchett of PGIM often notes, hybrid policies tend to be less efficient insurance vehicles but more emotionally palatable financial products. 2. Compare the cost and premium structure Stand-alone LTC: Premiums are not guaranteed and can increase over time. You’re paying solely for coverage — if you never need care, you get no benefit. Hybrid LTC (Life or Annuity): Typically involves a single premium or limited-pay schedule. Premiums are guaranteed not to increase, and if you never use the LTC benefit, your heirs receive a death benefit or you receive an annuity payout. The trade-off: You’ll usually pay more up front for less LTC leverage. 3. Assess coverage strength and flexibility Traditional LTC policies: More flexible inflation protection (e.g., 3% compound) Richer daily or monthly benefit options Shared-care riders for couples Hybrids: Typically cap LTC benefits (often two to four times the policy’s cash value or death benefit) Limited inflation options and stricter benefit triggers 4. Consider liquidity and control Stand-alone LTC: No cash value and limited refund options. Hybrid LTC: Maintains some liquidity; you can often surrender or borrow against the policy’s cash value. For those uncomfortable with tying up assets indefinitely, this can be a meaningful advantage. 5. Evaluate tax and estate implications Premiums for stand-alone LTC may be tax-deductible (within age-based limits). Hybrid policies don’t offer deductible premiums, but qualified long-term care benefits are received tax-free, and death benefits pass to heirs tax-free (in the case of life hybrids). 6. Practical decision framework Financial advisers often use this decision tree: Can you afford rising premiums and want maximum LTC protection? → Standalone LTC Do you dislike “use it or lose it” insurance or have legacy goals? → Hybrid life/LTC Do you have a large, low-yielding annuity and want to reposition it tax-efficiently? → Hybrid annuity/LTC (especially via 1035 exchange) 7. Advisor takeaway As planner Carroll Golden, author of “How Not to Tear Your Family Apart,” puts it, “The right policy is the one that fits both your financial capacity and your family philosophy of care.” Work with an adviser to model the expected present value of benefits under each scenario, stress-test for inflation and longevity, and align the coverage with your estate and caregiving plans. ChatGPT made some serious material omissions Here is the critique of ChatGPT’s answer by Scott Olson, co-owner of LTCShop.com. Olson is an insurance agent licensed in all 50 states and has specialized in long-term care insurance since 1995. Olson is also the author of “Long-Term Care Insurance NOW! An Industry Insider Reveals.” After reading ChatGPT’s answer, I feel confident that AI will not replace me anytime soon. In its attempt to decide whether to purchase a stand-alone long-term care insurance policy or a hybrid long-term care/annuity or a hybrid long-term care/life insurance policy, I grade its answer an “F.” As with most things in life, what is not said is often what matters the most. ChatGPT’s “analysis” had seven critical omissions: 1: ChatGPT should have warned: “Most hybrids are not guaranteed to remain in force for life!” Even if all the premiums are paid on time, most hybrids purchased today can lapse before the policyholder needs long-term care. If a hybrid lapses, the policyholder gets nothing: No death benefit. No long-term care benefit. No cash surrender value. Nothing! Everyone considering a hybrid must make certain that the hybrid is guaranteed to remain in force for life. I can’t imagine anything worse than buying a life insurance policy to help pay for future long-term care expenses, then, after paying all the premiums on time, the policy lapses before needing long-term care. Similarly, ChatGPT should have emphasized that most hybrids do not have guaranteed premiums. Most hybrids purchased today are either universal life insurance or indexed universal life insurance. The cash value in these policies pays for the mortality expenses and policy fees. If these expenses are greater than expected, the cash value can go to zero. At that point, the policyholder must pay extra premium, or the policy will lapse. 2: ChatGPT failed to mention that not every hybrid comes with the same type of rider. I’ve seen hybrid riders that don’t pay anything for long-term care at home. Other riders will only pay for nursing home care after six months of continuous and permanent confinement. I’ve seen riders that re-calculate the benefits when a claim is made for care. The longer the expected claim, the less the policy pays per month. ChatGPT should have explained that the only long-term care rider that meets the federal government’s standards is a 7702(b) rider. 3: ChatGPT is unaware of a regulation that is helping to prevent rate increases for traditional long-term care insurance. It’s called the Rate Stability Regulation. Traditional LTCi policies purchased in 41 states are now protected by the Rate Stability Regulation. This regulation has removed the profit incentive from rate increases. It forces insurance companies to lower their profits if they seek a rate increase. 4: ChatGPT, for some reason, doesn’t know about long-term care partnership policies. These policies have been around for over 20 years. These are special long-term care insurance policies that can protect assets from Medicaid even if the policy runs out of benefits. Normally, in order to qualify for Medicaid-funded long-term care, countable assets must be spent down to $2,000. Those rules are changed for owners of long-term care partnership policies. If, for example, someone receives $500,000 of benefits from their long-term care partnership policy, they could apply for Medicaid-funded long-term care, and they could keep $502,000 of countable assets. Those assets are even protected after the policyholder passes away, benefiting the policyholder’s heirs. Hybrid policies do not qualify for this special asset protection. 5: ChatGPT should have provided a simple checklist to know what to look for in a hybrid. For example, the best hybrids have all of these features: Guaranteed to remain in force to age 120 Guaranteed level premiums LTC benefits that are 3x to 4x the death benefit LTC benefits that are guaranteed to grow every year (by 3%) LTC rider is a 7702(b) rider 6: ChatGPT failed to give practical guidelines to know who would benefit the most from buying a hybrid instead of a traditional LTCi policy. It makes more sense to buy a hybrid if any of these apply: More likely to health-qualify for a hybrid Want an unlimited policy Plan to live outside the U.S. and Canada Want total control over choice of caregiver Prefer a short premium schedule (1, 5, 7, 10, 15, or 20 years) Can turn taxable growth into tax-free LTC benefits with a 1035 exchange from a cash value life insurance policy or a non-qualified deferred annuity 7: Chat GPT failed to give real costs. How can a decision be made about which type of policy is better when costs are not mentioned? Here are some real costs to consider: A married, nonsmoking male, age 60, can buy a hybrid that meets all the requirements I noted above: Guaranteed to remain in force to age 120 LTC benefits that are 3x to 4x the death benefit LTC benefits that are guaranteed to grow every year (by 3%) LTC rider is a 7702(b) rider By age 85, the monthly benefit is guaranteed to be $10,469 and the LTC benefit amount is guaranteed to be $753,797. The one-time premium payment for this hybrid is $69,300. A traditional long-term care insurance policy, with comparable long-term care benefits, would cost $2,731 per year. ChatGPT did get a few things right “…a stand-alone LTC policy generally provides the most robust coverage per premium dollar.” “…hybrid policies tend to be less efficient insurance vehicles.” With a hybrid, “You’ll usually pay more up front for less LTC leverage.” Stand-alone LTCi policies have more benefit choices, which allow for tailored policy designs. Premiums for stand-alone LTCi may be tax-deductible (within age-based limits). ChatGPT got a lot of things wrong ChatGPT says: Hybrid “premiums are guaranteed not to increase.” Olson says: As I noted above, most hybrids do NOT have this guarantee. ChatGPT says: “Consider Liquidity and Control–Stand-alone LTC: No cash value and limited refund options. Hybrid LTC: Maintains some liquidity.” Olson says: This statement is absurd. ChatGPT is saying that a traditional long-term care insurance policy is less liquid than a hybrid. Consider the example I gave above. The 60-year-old male can put a one-time premium of $69,300 into a hybrid, or he can keep his $69,300 in a HYSA. If his HYSA earns 4% per year, he can take the interest and pay his annual long-term care insurance premium. The $69,300 in his HYSA is fully liquid and remains his. The $69,300 in the hybrid is subject to surrender charges. ChatGPT says: “If you also want to preserve or transfer wealth, a hybrid policy may appeal more.” Olson says: Hybrids should NOT be purchased for transferring wealth for these reasons: With a hybrid, the death benefit is wiped out if care is needed for 25 months. The death benefit is only slightly higher than total premiums paid. In other words, it’s very expensive life insurance. To transfer wealth, it’s better to buy a life insurance policy separate from a long-term care insurance policy. This way, if care is needed, the death benefit is not depleted. ChatGPT says: “If you dislike the ‘use it or lose it’ nature of traditional LTC, a hybrid policy may appeal more.” Olson says: Hybrids are “if you use it, you will lose it” policies. As stated, if long-term care is needed for 25 months, the hybrid’s death benefit is wiped out. Looking at the prior example, if the 60-year-old male needs care, he still keeps $69,300 in his HYSA. If he had a hybrid, he would lose the $69,300 if care was needed for 25 months. ChatGPT says: “You’re paying solely for coverage—if you never need care, you get no benefit.” Olson says: This is a feature, not a flaw. With traditional long-term care insurance, you’re not paying extra premium for a death benefit you might not get. ChatGPT says: “Hybrids typically have capped LTC benefits (often two to four times the policy’s cash value or death benefit). Olson says: Wrong! Most hybrids have LTC benefits that are less than the death benefit. Only a handful of the very best hybrids have LTC benefits that are 2x to 4x the death benefit. ChatGPT says: “Hybrid policies don’t offer deductible premiums.” Olson says: Wrong again! The best hybrids have tax-deductible premiums. That’s one reason why the 7702(b) rider is important. The premiums associated with that rider can be tax-deductible. Retirement Medicare expert says Medigap prices hide 20% cost trap: Here’s an $840 out Health insurance expert Jae Oh explains why Medigap costs are climbing and what options retirees have for keeping coverage affordable. Robert Powell, CFP - Retirement, Senior Editor About the authors Robert Powell, CFP®, RMA®, is an award-winning financial journalist whose work has appeared in The Wall Street Journal, MarketWatch, USA Today, TheStreet, Investor’s Business Daily, Yahoo! Finance, and AARP. He is the editor and publisher of Retirement Daily on TheStreet and hosts the Decoding Retirement podcast. Powell also serves as editor-in-chief of the Retirement Management Journal and is a co-founder of finStream.tv. He was named a 2022 Robert N. Butler–Jack Rosenthal Age Boom Academy Journalist Fellow at Columbia Journalism School and received the 2021 RTDNA/NEFE Excellence in Personal Finance Reporting Award. Additionally, he teaches in the Financial Planning Association’s Online Elder Planning Specialist program. Celine is an experienced writer and editor covering news, features, academic/research, and legal topics for over 20 years. At TheStreet.com, Celine is a senior editor with experience across retail, stocks, investing, personal finance, technology, the economy, and travel.
