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Life Health > Long-Term Care Planning

Hybrids' Time in the Sun

By Allison Bell

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Low, low interest rates may not been much easier on writers of life-long-term care (LTC) hybrid products than they’ve been on writers of stand-alone long-term care insurance (LTCI) policies.

But the hybrid products are still here, and they now have room to catch advisors’ and consumers’ eyes.

Lincoln Financial Distributors, a unit of Lincoln National Corp., Radnor, Pa., has been selling the MoneyGuard option, an insuranced-linked LTC benefits feature, with universal life (UL) policies since 1988.

The company estimates in linked-benefits product marketing materials that it has sold about 60,000 UL policies with the feature since was introduced.

Lincoln reported in mid-2011 that it had increased the number of advisors recommending the linked-benefit UL to their clients by 61%.

Linked-benefit UL sales for all of 2011 jumped 72%, to $186 million, the company said in a financial report filed with the U.S. Securities and Exchange Commission.

The LTC product “has become a significant part of our business,” according to Andrew Bucklee, the head of MoneyGuard Solutions distribution at Lincoln Financial Distributors, a unit of Lincoln National Corp., Radnor, Pa. (NYSE:LNC).

Lincoln uses several riders in most states, and a separate set of riders in New York state, to offer the MoneyGuard feature. The heart of the program is a rider that gives an insured who needs help with two or more activities of daily living, such as eating or bathing, the ability to accelerate payment of the death benefit to help pay for LTC services. The rider can help the recipient pay for home care or adult day care services as well as nursing home services.

If the policyholder uses the LTC benefits feature, Lincoln will replace the original death benefit with a smaller death benefit.

A 60-year-old woman who bought a “linked-benefits” UL policy might pay a $100,000 single premium for a $170,000 death benefit. If she needs to use the policy to pay for LTC services, she could get up to $500,000 in LTC benefits, Bucklee said.

Lincoln started out requiring a full-length underwriting process when it introduced they life-LT hybrid product. In 2006, the company eliminated the need for clients to go through physical exams. Rider buyers now go through a limited underwriting process, Bucklee said.

Lincoln notes in an annual report filed with the SEC that it has a special team of claims examiners who focus on more complex claims matters, such as long-term claims.

Sellers of stand-alone LTCI products have been complaining about low policy lapse rates and low interest earnings on general account assets.

Lincoln has responded to the same forces buffeting the sellers of the stand-alone LTCI coverage in similar ways.

In September 2011, Lincoln cited low interest rates as the main cause when it reduced the size of the benefits it offers with new MoneyGuard policies.

In March this year, Lincoln cut life-LTC hybrid producer compensation to 6%.

Lincoln President Dennis Glass said he expects to see good growth in the MoneyGuard business in spite of the compensation changes.

Bucklee, who started out in the estate planning business, said he hopes more producers will understand why they should talk to clients about LTC costs.

A typical client might have an accountant, an estate planner, and one or more retirement advisors, but “no single advisor weaves everything together,” Bucklee said.

Some individuals are starting to ask about retirement costs, and LTC costs, but many advisors are still not sure what to say about LTCI, Bucklee said.

“How do you bring it up?” Bucklee asked. “How do you fit it in?”

Bucklee said financial professionals have to understand that LTC planning is critical to protecting clients’ assets.

“Industry professionals have to get their head around how much this is going to cost,” Bucklee said.

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