I know, I know – hybrids are all the rage. No matter where you look, what you read or what webinar you attend, someone is telling you that traditional long-term care insurance (LTCI) is dead and hybrids will save the world.
Maybe I've just never been one to go with the flow, but I think we all just need to take a step back and examine these products more closely. We need to ask the question "Is the hybrid sale good for the client sitting in front of me?"
I can remember when these products first hit the marketplace. They weren't very competitive. The long-term care (LTC) benefits in a traditional LTCI policy far outweighed the LTC benefits in a hybrid, most clients didn't have the amount of money it took to fund a hybrid correctly, and most of the hybrids were sold without any kind of cost-of-living rider.
What's changed? In 2014, some have objections to selling traditional LTCI. Some of the criticisms of traditional LTCI are: It's too expensive, the underwriting is too stringent and there have been too many rate increases. You can read many articles about why hybrids are better than LTCI.
I would postulate that each product has its place. Purchasing a hybrid allows customers to "check the box" and think they've done their long-term care planning. Unfortunately, some hybrids are sold incorrectly, and potentially at great harm to the client.
Here are some concerns I have about use of life-LTCI hybrids in some planning situations.
1. The LTC benefit is not flexible.
Since the size of the LTC benefit is determined by the size of the death benefit, it may or may not provide enough coverage. In some instances it's way too much and in others it's way too little. Some producers rationalize this by saying, "This is a high-net-worth client who would be willing to self-insure anyway. He/She understands this might not be enough coverage and is willing to pay the difference." While this product allows the customers to "check the box" and think they've done their long term care planning, the benefit they are purchasing might not be appropriate.
2. Some hybrids are sold without a cost of living increase (COLA) rider.
This is because, when a COLA rider is added to the policy, the LTC benefits may not look nearly as good. Once again, the rationale is, "It doesn't matter. This is a high-net-worth individual who is willing to self-insure anyway." I would argue that many clients don't really understand the implication of purchasing an LTC benefit of $2,500 with no COLA rider at age 55. We have to ask: What will happen at claim time? Do you think the client will be satisfied? Do you think the bulk of their LTC costs will be covered?
3. Some clients don't need the life insurance.
If a client needs a significant amount of life insurance, then LTC claims could reduce the amount of benefits available to the beneficiary. If clients don't need any life insurance at all, why are you selling them life insurance?
