The Value Of Combining Coverages? Lifetime Protection

Lifetime protection is an elusive concept in the context of health insurance.

That this is so can be seen in how health insurance coverages are compartmentalized. There is disability income insurance for individuals during the working years. There is critical illness insurance, largely issued to individuals, also during the working years. Finally, there is long term care insurance for people near or already in retirement.

What about combining these vehicles into one structure? The concept has much merit. The likely candidates: CI and LTC in one structure, and DI and LTC in another.

From a company perspective, there is much to like in such vehicles.

1. Most importantly, these vehicles would work to keep policyholders with companies for much longer periods of time.

2. These products could be underwritten once, with focus on the first contingency rather than LTC.

3. The products could provide for purchase options to keep up with income levels and expected increases in long term costs.

4. By issuing such contracts at lower ages, companies are likely to experience longer initial periods of better morbidity. The argument here is especially compelling with respect to the LTC piece.

From a buyer perspective, there’s much to like as well. For instance, the fact that these products would be underwritten once, at a younger age, eliminates what could be a major problem–loss of insurability as individuals age. Additionally, the policies can be structured to give a break to those who buy earlier.

The possibility of not only combining such offerings but also integrating them invites intriguing possibilities. Here are a few examples:

1. Provide for LTC to be paid up or have much lower ongoing premiums than would be applicable were the LTC to be issued at the age that the CI or DI would otherwise cease.

2. Provide the same structure as in the first example, but make it dependent upon either low claims history or claim-free history in the CI or DI phase. This would remove the often fatal objection that both CI and DI are (ordinarily) “use it or lose it” offerings. In the first phase of these contracts, policy owners will not have incentive to make perhaps specious claims due to fear that, if they don’t, they’ll have paid a whole bunch of premiums and received no benefits in return.

3. One could actually provide for concurrent plans in which the total pool of money available to a client during working lifetime is defined and split evenly between CI/DI and LTC. At retirement, or a similar designated age, the pool becomes payable only as an LTC claim.