Shared Benefit LTC Policies: Their Time Has Come

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Savvy consumers are asking their financial advisors a question these days. Its not “why do I need LTC insurance?” (They know why they may need it.) Its “is there a policy where my spouse and I can both be insured–for whoever needs long term care?”

Knowing the answer to this question and why your prospects should–or should not–buy this type of coverage, will increase both your sales and your clients satisfaction. As you will see, one very good answer has to do with shared benefit policies.

There is one primary motivation that propels people to ask this question: the desire to not be over-insured, or, as some put it “insurance poor.”

One or both spouses may feel that the first one who needs LTC will be taken care of at home by the other spouse, so a LTC policy on that spouse will not be necessary, or fully used. Or, perhaps the two think one spouse will never need LTC and, if so, a policy on that person would be “wasted.”

Often the type of person who worries about LTC expenses–a “planner” personality–is also a realist. This person wants to protect against most (but not all) LTC expenses, but is willing to keep some of the risk of paying the costs to himself or herself. This person may believe that lifetime benefits are overpriced relative to the odds of having a very long claim, and he or she may be willing to use other assets in the event of the truly catastrophic claim.

In these instances, you might suggest purchase of a shared benefit policy. Such a contract reduces significantly the two risks–that the premium will be “wasted,” or that the couple will run out of insurance benefits.

How do shared benefit plans work? Well, like many other aspects of LTC insurance, there is little uniformity. I looked at a few policies with shared benefits, and discovered three very different methods for adding a shared benefit.

Some shared benefit policies use one policy for two insureds, each of whom can access the benefit.

Other shared benefit arrangements are done with riders to two separate policies; here, the riders allow a spouse who has used up his benefit to access the benefit in the other spouses policy.

Other riders, in addition to allowing one spouse to use the benefits of the others policy, add an incremental benefit that can be accessed by either spouse. In this case, the total pool of money that could be collected is more than the total of each base policy, but only if both spouses need LTC. So, for example, each spouse may have a policy with a three-year benefit, and their shared benefit riders would add another three years–which can be used by either spouse (or both) if the base policy benefits are exhausted. This couple could then have a total of nine years of benefits.

What if, instead of both spouses purchasing lifetime benefit period policies, a couple purchases two five-year benefit period policies with a shared benefit? How does 10 years of shared benefits compare with two unlimited benefit period policies, from a premium point-of-view? Heres a look at the premiums of a highly rated LTC company that has been offering a shared benefit rider for years:

  • Assume husband and wife, both age 60.
  • Assume the policy has: 90-day elimination period, 5-year benefit period, 5% compound built-in inflation, and $100 daily benefit for facility or community care.
  • Assume the couples total yearly outlay is: $3,300.

Here, the cost with the addition of a shared benefit (the ability for each spouse to tap into the others policy) would be $3,630 a year.

To instead purchase the base policies with a lifetime benefit period, this couple would pay an annual premium of $4,140 (14% more than the shared benefit policy).

Is it worth 14% extra premium to skip the shared benefit policy, with its combined 10-year benefit period, and instead purchase unlimited policies? Many people would say yes.

Others, however, would say no. For them, the risk of a couple needing more than 10 years of care is not a great one.

But what if the couple is instead looking at a three-year benefit period for each policy. Then, in my opinion, the shared benefit policy looks even more compelling.

Using the same facts above, but substituting a three-year benefit period, the total annual premium for the couple would be $2,520 for two traditional policies. The shared benefit rider for a three-year benefit period adds 16% to the premium, for a total premium of $2,923 a year.

If one spouse in this three-year plan only needs a year of care, the other is left with a five-year benefit. The point is, the couple has six years of benefits before they have to tap into other ways of purchasing LTC.

In a perfect world, wed all be driving Cadillacs and Mercedes, and have lifetime benefit period LTC policies. Meanwhile, the shared benefit policy is a product whose time has come.

, CSA, is president of The Long Term Care Learning Institute, Plymouth, Mass. Her e-mail is md@marileedriscoll.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, September 2, 2002. Copyright 2002 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.