It's something long term care insurance consultant Marilee Driscoll cannot fully fathom. People who don't blink at the prospect of paying premiums on automobile, homeowners or life insurance policies that they may never use in their lifetimes somehow cannot justify purchasing a stand-alone LTCI policy – even though, if they are over age 65, they stand almost a 70 percent chance of needing some form of long term care.
"It seems to me," says Driscoll, founder of Long-Term Care Planning Month and author of The Complete Idiot's Guide to Long Term Care Planning , "long term care insurance is the only type of insurance where knowing your money won't be wasted becomes important. I don't know why that is, because you never really hear it with other types of insurance."
When the subject is long term care insurance, a senior client's first question often is, "Why pay for a policy when I may never need to make a claim on it?" With cash-value life insurance policies that carry a long term care component, advisors who seem destined for another dead-end conversation about stand-alone LTCI coverage now have a means to render the question moot and move discussions with clients toward a more productive end.
While so-called "combo" LI-LTCI policies have been around since the early 1990s, they lately have begun to come into their own, with more insurance carriers angling a growing array of products toward people who, for whatever reason, aren't suited to or attracted by a stand-alone LTCI policy. Today, explains Carl Friedrich, FSA, MAAA, a consulting actuary and principle in the Chicago office of the consulting firm Milliman, the choices include:
- First-generation products, with riders that can be added to a universal life chassis to afford the policyholder access to an accelerated death benefit to cover long term care costs. "If you never need long term care you'll just have more money in the policy to pass on to heirs," Driscoll notes.
- Second-generation products that package whole life, universal life or even variable universal life with long-term care benefits that can be drawn independent of the underlying insurance contract.
- A third group of products that combines features of the first categories with others designed to make the insurance components of the package more palatable, such as return-of-premium riders and compound inflation benefits. A product in this category might combine a single-premium universal life base with a rider that allows the policyholder to draw from the death benefit to cover the cost of two or three years of long term care, with some residual death benefit for the policy beneficiary. The policy also might have a separate LTCI rider that kicks in once the two- or three-year term of the drawdown ends. Return-of-premium and inflation-protection riders might also be part of the package.
Carriers appear increasingly intent on developing products that fit that mold. "We have helped quite a few [carrier] clients develop combination products in the last few years," Friedrich says. "It is a very hot topic."
Among the best candidates to purchase those types of products are seniors who clearly need some form of LTCI coverage but are hesitant to purchase a stand-alone policy to gain that coverage. Instead of trying to convince clients they need to purchase an LTCI policy, advisors and agents can steer them to a combo product, which they can roll into if they already own a cash-value life insurance policy or purchase if they don't. "The great sales hook of the combination policy," Driscoll says, "is that this combination makes it easier for a person to buy because they may not ever need long term care but they certainly are going to die."
Even LTCI specialists who tend to favor stand-alone policies for most of their clients say they see combo LI-LTCI products carving out a larger niche in the market. "It's a concept that really seems to be growing in popularity," observes long-time LTCI producer Peter Gelbwaks, CLTC, president and founder of Gelbwaks Insurance Services in Plantation, Fla. "You have products coming from top companies like Lincoln Financial, Genworth and John Hancock. It's not a product that's going to change the world, but I think you will see more life insurance companies moving in this direction."
The evolution continues
Though generally still a devotee of stand-alone LTCI policies, Gelbwaks speaks glowingly of combo products such as MoneyGuard Reserve, a universal life policy offered by Lincoln Financial Group that falls into the last of the three product categories. He points to MoneyGuard as an example of how combo policies have evolved for the better in recent years. For instance, underwriting, which historically has been seen as a drawback for life insurance policies with an independent LTCI feature (those in the second or third category) because they require dual underwriting tracks, is a much more straightforward process with LFG's combo product, he says. The process starts with a quick, simple yes-no questionnaire, advances to a telephone interview and concludes with prompt policy issuance, typically within seven to 10 days, he says.
The underwriting process associated with this type of product has historically "put clients through hell," Gelbwaks notes. No longer. According to Friedrich, insurance carriers are "becoming smarter in that regard," with streamlined processes that make more use of telephone interviewing to minimize the burden on producers and their clients.
For policyholders who want long term care coverage, MoneyGuard Reserve features both an accelerated death benefit rider and beyond that, an extension of benefits rider. Gelbwaks prefers also to add a return-of-premium rider (available on single-premium policies) to give the policyholder what amounts to a "forever-free look" that addresses the common client concern about "wasting" premiums should they never actually need long term care.
Another important feature of combo LI-LTCI products purchased via a single premium payment is the ability to dodge premium increases. Rate increases are a fact of life for many owners of stand-alone LTCI policies. Avoiding the ambush of those potentially substantial annual increases appeals to consumers, especially seniors on a fixed income. Whether the single-premium policy includes an accelerated death benefit rider, independent LTCI coverage or both, the policyholder won't have to worry about premium hikes.
