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The Rose’s Thorn: Increasing Premium Rates for Hybrid Life Insurance-LTC Policies

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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

Despite the potential for large rate increases next year, combining long-term care benefits with a life insurance policy will likely remain a popular planning technique. Long-term care insurance can be similarly expensive but does not guarantee that any benefits will ever be paid if the insured never requires long-term care.

Combining long-term care benefits with a life insurance policy that is guaranteed to provide an eventual death benefit gives hesitant clients a degree of certainty that can’t be found with traditional long-term care insurance. Even if the client never requires long-term care, he can still be certain that the policy beneficiaries will receive the death benefit value upon the death of the insured. Further, many of these policies allow the insured to borrow against the cash value of the policy during life. If the insured needs to use only a portion of the accelerated long-term care benefit, the remaining death benefit will still be passed on to the insured’s beneficiaries. In general, because many large insurance carriers have recently exited the long-term care insurance market, straight long-term care insurance has become difficult to secure even where cost is not a controlling factor—leaving these hybrid policies as a very attractive alternative.


While revised AG 38 is bound to cause premium increases in hybrid life insurance-long-term care policies, this type of policy may still be right for your clients. With proper planning, a hybrid policy can provide your clients with the protection they need and the certainty that their investment will not be wasted.


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