Are Combination Products Poised For Take-Off?
Life and long term care insurance, annuities and LTC insurance, life and critical illness insurance, disability income and long term care insurance, critical illness and long term care insuranceBesides being a recipe for alphabet soup, these are some of the combination products about which the insurance sector is seeing or hearing.
The concept of combining different risks into one product has been around for a while, but execution has been lagging. Are combination products now poised to take off?
There is some evidence that consumers want them. A recent series of focus groups on critical illness insurance indicated that consumers recognize the need for various insurance products but feel they cant afford them all and need to make choices. The focus group participants themselves suggested that companies offer “hybrid” or conversion products that would provide multiple coverages for less than the cost of buying each individually (see NU, August 23/30, 2004).
What Your Peers Are Reading
And companies are designing them. A review of company activities over the last year or so shows a wide variety of combination products, on the shelf or on the drawing board. Here are examples:
Life insurance with long term care. This combination seems to be the most prevalent. A cash value life insurance policy (often universal life or variable universal life) provides the life insurance benefit. LTC coverage is provided as a rider or as an acceleration of the death benefit.
There often are options to increase the total sum paid beyond the initial death benefit of the life policy. For example, one company offers a rider that increases the amount of money available for LTC to 2 times the death benefit of the life policy. Other products offer optional riders to extend LTC benefits after the original death benefit has been depleted, for a specified time or for life. Another feature in some products is a residual death benefit that provides a limited death benefit, even if the LTC expenses exhaust the original face amount of the policy.
Disability income insurance with long term care. DI insurance protects individuals against loss of income due to disability during their working years; LTC insurance protects individuals from having to spend their income and assets (whether during their working years or, more commonly, after retirement) on the high costs of extended care. Thus, the combination of DI with LTC insurance seems to make sense. One company offers an exchange of a DI policy for an LTC policy between the ages of 60 and 70, without evidence of insurability. Other variations on this concept include offering a future purchase option that allows the insured to buy LTC insurance at some point in the future without evidence of insurability.
Annuity with long term care insurance. One of the more frequently mentioned combinations of annuities and LTC insurance is using an immediate annuity to fund LTC insurance premiums. Other variations include penalty-free withdrawals of the annuity accumulation value; two-tier annuities, where the higher value, which is greater than the surrender value, is available only for qualifying LTC expenses; and immediate annuities with LTC riders that offer increased annuity payments if the annuitant is disabled.
Life with critical illness insurance. More common in Canada, a CI rider is added on to a life insurance product. The CI benefit is in addition to the life insurance death benefit. Another option for a life/CI combination is to offer an accelerated death benefit if the insured is diagnosed with a critical illness.