It’s no secret – the Long-Term Care Insurance market took a big hit when people started actually using the insurance. Between underpriced policies, lapse rate assumptions that were miscalculated, and the general increase for the need for Long-Term Care planning – the carriers got punched in the gut. While there has been some negative press in the last 10 years, the market has finally stabilized. Why? The carriers have finally figured out how people use the product! With the population getting older, and living longer – the need for care has increased. In this article from the Wall Street Journal, they talk about some of the innovative new products that have come out in recent years, and how they might appeal to someone who previously wasn’t considered a target market; individuals that want to protect their estates. The industry is starting to figure out new ways to make LTC benefits meaningful, but also sustainable.
There is one word that simply defines it; Hybrid. Hybrid policies can do two things – they are Life Insurance contacts with Long-Term Care components attached to them. But what does that mean? If you need extra life insurance, you’ve got it; but if you happen to need Long-Term Care at some point, you can use or “accelerate” the death benefit of your policy to pay for LTC services. The idea is that a benefit will always pay to the insured. The insured could potentially use all or just some of their benefit for LTC services. The life with LTC benefits policies include Term Life, Universal Life, and Whole Life structuring. Each type of life policy has their own opportunities, pricing structures, and LTC benefit amounts – long story short is that benefits can be tailored to fit many different budgets. Plus, if the program is offered through an employer, Guaranteed Issue is available – something the traditional Long-Term Care marketplace hasn’t seen for quite some time.
Estate planning is an interesting way to look at Hybrid policies… With American's living longer than in previous generations, individuals are planning healthcare costs during their retirement years. A long-term care event is very expensive with the national average for care between $47,934 - $97,455 annually (depending on the care received). I have personally seen the financial constraints of a LTC event within my own family. Just to pay for care, my family had to sell the house my grandfather grew up in and raised his family in. The money gained from the sale of his house was only enough to pay for a few years in a retirement home. However, if he had a Hybrid Policy, it would have helped to pay for his long-term care until any remaining benefits would have paid to a beneficiary.
Who does it?
In the group/employer space, we’ve seen growing popularity with younger buyers. A younger buyer may not have the capital for a Whole Life Policy, but may have also had a recent family event with LTC. A Permanent Term life program, like the one that Chubb offers, allows for individuals to buy Term Insurance with LTC benefits which is much more affordable than Whole Life. That, coupled with the potential for Guarantee Issue leaves a large opportunity for many individuals to get some kind of benefit – whether it’s in the form of LTC or Life Insurance.