Long term care insurance policies have matured substantially, with numerous versions of the product having come and gone over the past 30 years. The first two decades of policy designs focused almost exclusively on long term care coverage, neglecting other insured risks. But recently, new hybrid trends have emerged that incorporate pure life insurance, annuities, or cash value into long term care coverage. Now, the industry is beginning to offer a blend of life, annuity/cash value, and LTC coverage.

How can you find the most appropriate solution for your client? Try fact-finding first to meet your clients’ needs, rather than jumping right in with a presentation on LTC coverage — this may reveal other insurance needs.

It’s helpful to understand that some clients may feel they will never need an LTCI policy and it doesn’t matter whether they’re denying that a long term care event will happen to them or if they believe that if it does, it won’t last long. Others may not want to devote cash flow dollars to a policy that covers only long term care because they may have a variety of insurance needs or already have competing cash flow constraints. Thus, bundling long term care and other coverage using a hybrid approach might be just the ticket for the skeptic or the client with limited resources who truly has more than one insurance need.

Inventory of existing policies and survivor analysis

First, take a thorough financial inventory of existing insurance policies as well as retirement and education assets, cash, other investments, and, of course, household income sources. Questions that delve into the client’s experience with families and friends who have gone through a long term care event with a loved one can help uncover which clients may be more sensitive to the need for long term care coverage and, in turn, more in tune with preparing for this kind of risk. Combining these steps with a solid survivor analysis can reveal if the client still needs life insurance, whether it’s short or long term, and how much they need.

The agent, now armed with plenty of in-depth information, can help the client choose between standalone LTCI policies, long term care policies with return of premium, life/LTC hybrids, or other combination approaches.

For the true skeptics, a return of premium rider

True skeptics may not respond favorably to the options you present, but it’s worth showing a traditional LTCI policy with a return of premium rider. This kind of approach typically returns the policy premiums paid to a named beneficiary, minus any benefits paid out for a long term care claim. The client then knows they’ll get something back one way or another, so they will be less likely to feel as if they’ve wasted premium dollars.

For someone with an ongoing sizeable life insurance need who also wants some long term care coverage in place – and, perhaps, who just doesn’t have the cash flow to pay for both – the positioning of a traditional life insurance policy with a long term care rider might work well. This approach most often reduces the death benefit when long term care benefits are paid out, but it could be a tradeoff the client is willing to make.

New hybrids

For those who have lump sums that can be devoted to long term care goals, relatively new hybrid policies combine an annuity or cash value with long term care benefits; there are also financial products that combine an annuity/cash value, life insurance, and long term care benefits.

Both options typically have a long term care benefit that is determined when the policy is purchased, and if a claim is filed, will deplete or draw down the associated cash/annuity value and the death benefit, if there is one. As a number of insurance companies have introduced such products, it’s worth taking a look at what’s out there to become familiar with the specific features of each policy.

Hybrids expand coverage, help keep premiums down

One creative way to approach the design of long term care benefits for a client is to present a traditional long term care proposal designed for a typical home care event of $100 to $150 per day with a three-year benefit period to focus on core coverage to keep the premiums down. Combine this with a lump sum invested into a hybrid cash value product with a death benefit.

Here’s an example of how it could work:

  • If the policyholder filed a long term care claim, they would file against the traditional LTCI policy to utilize its benefits first, and then tap into the hybrid cash value policy with death benefits.
  • Since the majority of long term care claims don’t go beyond three years, according to the American Association for Long-Term Care Insurance, if someone never needs the hybrid cash value policy or only uses some of it and subsequently dies, the remaining death benefit will then go to a named beneficiary. It could be a win/win for the client who feels they want something out of these policies, one way or another.
  • The other component of this policy design is a guaranteed cash value that accrues in the policy, so that even if the policyholder decides later on that they don’t want or need any long term care or life coverage, they can cancel their coverage and still have a surrender value to recover, depending on claims or other partial surrenders.

Trade off between hybrids and traditional core LTCI policies

One caveat about these hybrid products is there is almost always some sort of trade off with using a hybrid rather than a traditional core LTC product design. One of the most commonly seen differences is the lack of a built-in inflation option, which keeps the benefits from going up over time with the cost of care. You’ll need to assess the importance of this with the client, as it could be perfectly fine for the client who is willing to self-insure the difference over time as the cost of long term care increases yet the policy benefit remains the same.

The other major trade off of hybrid policies is the reduced ability to customize the policy design for long term care benefits given that these products very often limit the choices for such features as different benefit amounts, elimination periods, benefits periods, and other popular riders seen on traditional LTCI policies.

Stuart H. Armstrong is a John Hancock Life Insurance Company agent with Centinel Financial Group. He can be reached at 617-424-0005 or sharmstrong@jhnetwork.com.