The popularity of combining life insurance with long-term care benefits has soared in recent years—for good reason. Premiums for long-term care insurance have increased dramatically, which has caused clients to turn to hybrid policies that, unlike traditional long-term care policies, are certain to provide some type of future benefit. Despite these benefits, new actuarial guidelines have been released that are likely to increase the premium rates for the life insurance portion of the hybrid policies, and the popularity of these hybrids means that an understanding of the new rules is crucial to help advise clients.
Actuarial Guideline 38
The National Association of Insurance Commissioners revised actuarial guideline 38 (AG 38) to address the problem of possibly inadequate reserve levels among life insurance companies that issue universal life policies with secondary guarantees (typically the type of policy that combines universal life insurance with long-term care benefits).
In many instances, the revised guidelines for calculating reserve levels will require life insurance companies to increase their reserves to ensure they are able to pay the benefits they have guaranteed. Revised AG 38 will apply retroactively to policies issued as early as July 1, 2005.
Because the revisions to AG 38 will likely cause life insurance companies to increase their reserve levels, it will make issuing these policies more expensive. And, because AG 38 applies to exactly the type of hybrid life insurance-long-term care policy that may have become increasingly popular among your clients, it is likely that this increased cost will be passed along to your clients in the form of higher premium payments.
While insurance companies have not released any definitive estimates of how much rates will increase, industry professionals have estimated that the increase will be at least 5%-10% but could be as high as 20%-25%.
Hybrids Likely to Remain Popular