Underwriting Has Role In Choosing Products For LTC Planning
A growing number of insurers now offer policies combining a life insurance or annuity base contract with a long term care benefit rider.
While these innovative plans have marketing sizzle and offer contractual alternatives to stand-alone LTC policies, they also present certain underwriting considerations.
Brokers need to be aware of those considerations, especially when contemplating using the policies with clients who have medical impairments.
Those who think it will be easier to place a medically weak applicant with a combo policy are often in for a rude awakening.
Underwriting for combo life/LTC policies is typically broader than for an individual LTC policy–because the applicant must be insurable for life insurance before the LTC rider is considered. Once the life base is approved, the underwriting for a LTC rider is the same as for a stand-alone LTC policy.
Does that mean the life/LTC combo policies have a higher declination rate? Not necessarily.
Executives at one prominent combo insurer tell me that over 90% of the companys combo applications are approved as applied for. This is especially likely when the relative age of applicants for the combo policy is younger than for stand-alone LTC.
But you should know that underwriting for combo policies can reveal problems that wouldnt be caught in the typical LTC application. Thats because, when the LTC underwriters see the results of tests required for the life underlying, they gain information they otherwise might not have known.
They also see answers to health questions that arent always asked on stand-alone LTC applications. For instance, a family history question is a common part of every life insurance application, but not necessarily for stand-alone LTC policies. Therefore, underwriters of combo policies may end up seeing family information that their stand-alone LTC counterparts would not.
Some conditions make a prospect a particularly bad risk for combo policies. For example, someone with a history of stroke may be issued standard rates for life insurance, but they may be uninsurable for the LTC rider.