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LTC riders on life insurance policies

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While many shy away from the price of stand-alone LTC policies, adding hybrid coverage is often an easier alternative. She’s a client who typically embraces your suggestions without hesitation. But when discussion turns to long term care insurance, her open-mindedness turns to resistance. Four times you’ve raised the subject of purchasing a stand-alone LTCI policy with her, and four times you have been rebuffed, despite your repeated assertions that doing so is clearly in her best interests.

You don’t want to be too pushy and let this one issue spoil a longstanding fruitful relationship. You can make the asset-, family- and estate-protection argument for LTCI only so many times. So how to break the stalemate? Here’s where an advisor who has a strong working knowledge of combination life insurance/LTCI products can pull the proverbial rabbit out of the hat: an alternative solution for people who balk at buying stand-alone LTCI.

For roughly the past two years, Lincoln Financial Group has used a dedicated marketing and training team to inform advisors in the insurance and financial communities that, with the current generation of “combo,” “linked” or “hybrid” life-LTCI products (LFG’s is called MoneyGuard Reserve), they now have a tool that appeals to the client who staunchly rejects stand-alone LTCI coverage.

“Stand-alone long term care insurance does a great job of filling a specific need,” observes Mike Hamilton, assistant vice president for life product management at LFG. “But survey after survey shows that people think it’s too expensive, that they won’t ever need coverage and that if they don’t need it, they won’t have anything to show for the investment. By not buying a [stand-alone] policy, a person is basically choosing to self-insure for long term care. Those are the people who we’re going after with the linked product.”

After toiling on the periphery of the insurance market since first introduced in the late 1980s, combination LI-LTCI products appear to finally be finding broad acceptance among advisors and the public at large. The products have been buoyed by ongoing product refinements, recent favorable changes in federal tax law and a concerted effort by carriers to promote them to advisors and consumers as a viable, positive alternative to stand-alone LTCI.

“We’ve seen our linked-benefit business double in just the last five years,” says Mark Doherty, LFG’s director of relationship management. “We feel like the sky is the limit. Today’s it’s a half-billion-dollar market, but ultimately we think it’s going to be a multi-billion-dollar market.”

Opportunity knocks, says Beth Ludden, senior vice president for long term care product development at Genworth Financial in Richmond, Va. Advisors who expand their LTCI discussions with clients to include combination as well as stand-alone policies can do very well. “Among advisors who are selling traditional [LTCI] products, we see an initial reluctance to sell [combination] products, primarily because they saw the early versions of these products that didn’t have as robust benefits as stand-alone policies,” she says. “Based on that, they are skeptical about these products providing the protection they feel is necessary. They also may not feel comfortable selling life insurance. However, advisors who are willing and able to address the [combo] product in an open-minded fashion are seeing really good success if they are can pivot to the life-long term care product.”

According to the experts, there are several common cues that tell the advisor when to pivot from the stand-alone to the combo product:

  • Persistent cost-based refusals. Rates for new stand-alone LTCI policies have increased 25 percent to 40 percent in the past four to five years, according to Carl Friedrich, FSA, MAAA, a consulting actuary and principle in the Chicago office of the consulting firm Milliman. Combo policies afford consumers a chance to obtain less expensive but more limited coverage.
  • Repeated assertions that they don’t need a stand-alone policy because they won’t ever need long term care. Hamilton points out that a return-of-premium feature is available with most combo products offered today.
  • Concern that money used to fund a stand-alone policy would be “wasted” if the policyholder never needs care. As Friedrich points out, unlike with stand-alone LTCI, “You do get cash accumulation within the [combo] contract, so it’s not a use-it-or-lose-it proposition.”
  • The client’s application for stand-alone LTCI coverage was rejected. If the person already has a permanent life insurance policy, he or she might be able to convert it to combo product with minimal additional underwriting.
  • A stated preference for a “once-and-done” single-premium payment, based on an expressed reluctance to assume the very real risk of rate increases associated with stand-alone LTCI.
  • The existence of a “safe money” or “rainy day” fund such as a CD that can be used to purchase a single-premium combo policy.

The best candidates for a combination life insurance-LTCI product, Hamilton says, are people who otherwise would be prepared to self-insure for long term care. They may have sufficient assets and income to cover “normal” expenses but not to weather an extended draw-down for long term care. Most buyers range in age from 55 to 75, he says.

“In general, they have probably heard the stand-alone [LTCI] spiel and rejected that for themselves,” Ludden adds.
Women represent about two-thirds of LI-LTCI combo product purchasers, according to Hamilton. And at both Genworth and LFG, the vast majority of purchases involve a single premium payment, which means buyers tend to be wealthy, with the liquidity to afford a premium payment substantial enough to purchase robust coverage.

One attribute of the typical combo product purchaser cuts across demographic classification, Ludden says. “It’s very attractive to consumers who don’t feel or don’t care to admit they have [an LTCI] need and who like the fact they can take their money and get double-duty out of it,” she says. “There’s the long term care benefit, plus the proceeds beneficiaries will realize from the policy at [the policyholder's] death.”

The combo product resonates most, she adds, with clients who understand they will forego some of the potential growth available in a stand-alone permanent life insurance policy in order to get a product that works double-duty.
An ever-widening array of products and features in the combination market puts a greater emphasis on comparison shopping. The simplest LI-LTCI combo contracts include a UL chassis with an accelerated death benefit rider to cover the cost of long term care. Those riders tend to cost in the range of 10 percent to 20 percent of a stand-alone LTCI policy, according to Friedrich Then there are products that package whole life, universal life or even variable universal life with long-term care benefits that can be drawn independently of the underlying insurance contract. They are priced and structured more like stand-alone LTCI. Products such as LFG’s MoneyGuard Reserve and Genworth’s Total Living Coverage can be configured with a combination of accelerated benefits and extended, independent LTCI benefits.

In general, the experts say, it’s wise when comparison shopping to look for products that:

  • Allow buyers to leverage at least $4 to $5 of long term care benefits per premium dollar.
  • Provide the strongest death benefit leverage per premium dollar.
  • Provide the strongest residual death benefit in the event contract funds are drained for long term care needs.
  • Offer protection against rate increases, if it’s a flexible-premium combo product.
  • Let the buyer “mix and match” acceleration of benefits and extension of benefits features.
  • Have a return-of-premium rider.
  • Features some multiple of the death benefit for catastrophic long-term care needs.
  • Provide flexibility in long term care benefits, with home care and facility care options, plus other features common to stand-alone LTCI policies.

All this add up to a product more advisors are using with clients for whom stand-alone LTCI isn’t an option.


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