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Jun 16, 2014 • LTCI Partners

How much should an LTC buyer pay for the option to have cash benefits?

Standalone LTC insurance products have a lot in common nowadays - they cover care at home or in a care facility, they have similar benefit triggers, and use roughly the same underwriting.  The actuarial assumptions are also similar among carriers - low interest rate returns for carriers reserves and low lapse rates for policyholders.

That being said, there are still some premium differences. 

Let's take a look at plans from two leading carriers with their third generation products - let's call them "GIII" and "TIII".  Here are the combined annual premiums for a mass-affluent 60-year-old couple, preferred health rates, $4,500 of monthly benefits, 3% compound benefit increase option, 90-day elimination period and a $162,000 benefit pool:

"GIII" : $3,549.00             "TIII" : $3,803.02

So why the difference?  Since these are the latest plans, shouldn't the premiums be closer?  One clue might be in the home care benefits available.  The newest plan from carrier "G" offers a home care benefit that requires use of a licensed home health care agency - with no independent care provider reimbursement (except for certain rural policyholders).

On the other hand, carrier "T" offers an alternate cash benefit - the option to get a check for 10x the daily benefit on a monthly basis, regardless of who is providing care (including family members).  In the example above, that would be a $1,500 cash check each month.

Of course, both home care benefits are pursuant to a plan of care.  All other things being equal, the ability to access that alternate cash benefit is surely worth something, but how much would you pay?  Would you pay the annual $250 premium difference?

 

Written by LTCI Partners