AALTCI Finds Out What Life-LTC Hybrid Coverage Really Costs

What You Need to Know

AALTCI looked at IRC 7702B linked benefits from four insurers for 55- and 65-year-old insureds.
The 55-year-old woman could get about $80 in LTC benefits at age 85 per dollar of premiums per year.
A 65-year-old man could get $51 in LTC benefits at age 85 per premium dollar per year from the most expensive insurer included.

The American Association for Long-Term Care Insurance is changing with the times and starting a linked-benefit long-term care insurance price index survey program.

The Westlake Village, California-based group based the first index data on results for a 55-year-old man, a 55-year-old woman, a 65-year-old man and a 65-year-old woman.

All of the insureds were insurable. They all asked for life insurance, with built-in long-term care benefits, that met the Internal Revenue Code 7702B requirements for long-term care insurance.

Some insurers offer annuity-LTC hybrids, but more sell life-LTC hybrids. AALTCI looked only at life-LTC hybrids.

What It Means

The AALTCI results could help insurance, financial and retirement professionals give clients a rough idea of what hybrid-based LTC planning might cost.

Life-LTC hybrid premiums can vary widely from client to client. They are highly sensitive to factors such as gender and age.

Men tend to pay less than women, because they have a shorter average life expectancy than otherwise comparable women do, and they are more likely to have female relatives healthy enough to act as family caregivers when they start to need help with the activities of daily living.

Jesse Slome, AALTCI’s director, said in a comment included in a results summary that consumers should think carefully about the insurer and the full scope of a policy’s benefits, not simply the cost, when choosing a life-LTC hybrid product provider.

“Selecting the right coverage is a lot more complex than simply looking for the lowest-premium cost,” Slome said. “And since it almost never pays to drop and replace coverage, making the right initial plan choice is of paramount importance.”

The Lowest-Cost Deal

AALTCI found that a 55-year-old man could pay one insurer as little as $5,235 in premiums per year for $568,801 in maximum LTC benefits at age 85, or $109 in maximum benefits per dollar of premiums per year.

He would leave a death benefit of $240,804 at age 100.

The Background

Slome founded AALTCI in 1998, at a time when interest rates were higher, ideas about how long-term care insurance insureds would behave were heavy, and offering affordable, attractive, stand-alone LTCI coverage was much easier than it seems to be today.

AALTCI and most of its members were adamant that most consumers should try to protect themselves against extreme long-term care risk by buying the most possible LTC benefits per premium dollar.

Today, LTC planners say that, in spite of low interest rates and news of big premium increases, stand-alone LTCI continues to be the best way to maximize the amount of LTC benefits available per premium dollar.

But many consumers like the idea of bundling LTC benefits together with life insurance, so that their families get some benefits even if they personally are lucky enough not to need long-term care.

Some life insurers believe that life-LTC hybrid policies may be easier to write, because life insurance risks and long-term care risks tend to offset each other and lower the overall level of policy risk.