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March 28, 2018 at 11:28 AM
Hybrid insurance policies for long-term care (LTC) are very popular and becoming more so each year. Lets look at some of the reasons why.
Traditional LTC insurance policies had some significant price increases. These were the first time insurance plans were conceived to cover what had always been done by the wives of our children in the 1950’s. They were put together by actuaries who had no data on how they would be used, or who would be the recipients of such care. Thus they were sold too cheaply to people they never should have been sold to.
(Related: Shift in Long-Term Care Planning Shapes ILTCI Meeting)
That, of course is a recipe for trouble and trouble did occur. The insurers found that hardly anyone drops a LTC policy, especially as they aged and knees, hips, and other things got older. When care is needed soon, you look forward to benefiting from the insurance. Thus price increases happened to keep the pool of this business able to pay claims.
The great majority of these traditional policies also contained an option that increased the benefits 5% compound every year to keep up with the increasing costs of care.
Then the hybrids came out, life hybrid and annuity hybrid. The life version gives the insured a percentage, typically 2% or 4% of the death benefit monthly when LTC is needed. This adds cost, and typically comes out of the cash accumulation of that life policy. The annuity option gives you back the money much faster, and possibly multiplied somewhat to pay for care.
If you do not need LTC, you get the life insurance. Why buy the traditional policy if this locks in your premium and you get to collect one way or the other. The life insurance agents familiar with life and annuities understand and like them. The insurance companies love them since without that all important inflation to keep up with costs, they significantly limit what they must pay at claim time. Everybody is happy.
