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BSMG Blog: Protecting the Future of Families and Businesses

Are Your Clients Wondering About Hybrid Long Term Care Solutions? Part 1

Posted by Joseph Savastano on 9 Nov 2017

In 2017, as in-force rate increases become the norm and more and more carriers are exiting the traditional/standalone Long Term Care (LTC) space, we continue to see the trend of clients migrating from traditional LTCi to hybrid solutions.

With this recent shift, I thought it would be helpful to share an in-depth breakdown of what these solutions are. My hope is to help remove some of the barriers you may experience when having the important LTC conversation with your clients. 

Hybrid LTC.png

Hybrid solutions (also referred to as linked benefit solutions), offer LTC peace of mind with added benefits not typically available with standalone long term care insurance, including but not limited to:

  • Guaranteed premiums
     Carrier can never ask for more money than the scheduled premium    
  • Guaranteed benefits
    If the client never uses LTC, a death benefit equal to or greater than the total premiums paid is payable to named beneficiary(ies)
  • Liquidity
    The policy can be surrendered for cash at a declared rate of premiums paid to that point
  • Short-pay options
    Traditional LTC is typically always life-pay
  • Simplified issue (limited underwriting)

Read More: Infographic: Understanding Long Term Care Costs

Hybrid solutions are often confused with fully underwritten life insurance with a long term care or chronic illness rider (also referred to as an accelerated death benefit rider), but in addition to the more stringent underwriting associated with life insurance policies with riders, there are a couple of glaring differences between said policies and hybrids. First, a life insurance product with a LTC rider has no LTC benefits payable beyond the death benefit. Hybrids offer an extension of benefits whereby the LTC benefit will continue to be paid for a defined period of time even after the death benefit has been completely exhausted. Additionally, accelerated death benefits are typically stagnant, with no option to add an inflation rider to budget for the increase in the cost of care.

To illustrate, a popular life insurance product with a LTC rider might look like this:

  • $100,000 death benefit
  • LTC acceleration rate/payout: 2% of the death benefit, or 50 months
  • LTC maximum acceleration amount: $2,000/month
  • LTC claims come off the death benefit dollar for dollar, remainder is paid as death benefit to named beneficiary(ies)
  • After 50 months of LTC claims at $2,000/month, policy ceases to exist
  • Total potential LTC pool is therefore $100,000, which will stay stagnant throughout the life of the contract

While a popular hybrid contract might look like this:

  • $100,000 death benefit
  • LTC acceleration rate/payout: 1/24th of the death benefit, or 24 months
  • LTC maximum acceleration amount: $4,167/month
  • LTC claims come off the death benefit dollar for dollar, remainder is paid as death benefit to named beneficiary(ies)
  • After 24 months of claims at $4,167/month, the death benefit has been completely exhausted
  • After death benefit has been completely exhausted, there is an additional 48 months of LTC benefit available at the same monthly maximum ($4,167/month)
  • Total potential LTC pool is therefore $300,024 (72 months x $4,167/month)
    If you include a 3% compound inflation rider, by contract year 20 the monthly LTC benefit is $7,306 and the total potential LTC pool is $526,032

Read More: Top LTCi Blogs for Long Term Care Awareness Month

Now that you can confidently explain the differences keep a look out for part 2 where I take an in-depth look at a comparison of hybrid products. 

We want to hear from you!

What are the most common questions your clients have about LTC?
Which hybrid LTC product do you use the most? 
What is the most common objection you hear to LTC insurance?

Winning the Argument Against Self-Insuring LTC - Download

Topics: Long Term Care, Linked Benefits