Underwriting Has Role In Choosing Products For LTC Planning

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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.

Conversely, an applicant with a history of brain cancer may be insurable for stand-alone LTC, but would not medically qualify for the base life contract on a LTC combo policy. (Note: A second-to-die life insurance contract with a LTC-rider covering both insureds can be an option in a case like this.)

Are there any product options for prospects who want to private pay the cost of LTC but are uninsurable? Yes.

For example, one company is marketing an annuity with a guaranteed-issue LTC-type rider. The benefits of this contract are not payable for the first seven contract years, and issue amounts are limited. Also, once benefits are triggered, they are paid into the annuity, so taking the money out has tax implications.

Another insurer is marketing a contingent insured rider for a stand-alone LTC policy. This rider is designed to cover the uninsurable spouse of a policyholder. It allows the spouse covered by the rider to receive benefits if the underwritten spouse is receiving LTC benefits at the same time

Such products are, of course, not the same as stand-alone LTC insurance, which offers day one coverage for pennies on the benefit dollar, but they can be a tremendous help in some situations.

What if you have a client who has an imminent need for long term care services, or one who is already receiving services? In this case, LTC insurance is not an option. However, assuming your client has some assets, you might consider recommending a medically underwritten immediate annuity.

Also called impaired risk annuities, these single premium contracts pay the client a higher monthly income than would a standard (not underwritten) immediate annuity for the same premium deposit. This is possible because of the persons impaired health and, presumably, shortened lifespan.

An insured who owns such a contract can use the monthly payout to help pay for care, possibly in combination with funds from other sources.

As you can see, there are several products available that can help clients in their LTC planning, regardless of their insurability.

, CSA, is president of The Long Term Care Learning Institute, Plymouth, Mass. E-mail her at: mdriscoll@marileedriscoll.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, November 12, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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