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Hybrid LTC
Life Insurance with LTC benefits -how to decipher the key differences
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The following content is designed to be educational in nature. The article explains the differences between life insurance policies with some sort of additional LTC benefits attached. It was written by Ramona Neal, a specialist in the LTCi industry. I believe it is an accurate representation of these policies and why the Extension of Benefits 7702(B) type of policy can provide the most benefit for an individual or couple searching for additional LTC coverage, without purchasing a traditional LTC policy.

Extension of Benefits.  What's in a Name you ask?  Everything.

If you ask an insurance professional what category they use to describe these products you will hear: Hybrid, Linked Benefit, Asset Based, or Combination products. 

 

Although I concede that these are not wrong, they are lacking.  The problem is sometimes they are used interchangeably to describe LTC and Chronic Illness riders on life insurance, and quite frankly, that's an insult to LTC Extension of Benefit Products.

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The point is Extension of Benefit products offer more robust LTC benefits.  Specifically, they allow one to:

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(1) accelerate the entire guaranteed death benefit amount;

(2) plus accelerate a second pool of guaranteed monies after the death benefit has been exhausted (hence "extension of benefits");

(3) they have premiums which are guaranteed (no in-force rate actions to increase charges for existing policy holders);

(4) they have monthly LTC benefit amounts which are guaranteed; and

(5) most offer guaranteed return of premiums or cash values - up to 100% of the premiums paid.

 

As a result, they are sometimes sold as repositioning lazy assets (savings account or CD) where your investment guarantees a return of premium should you surrender the policy and if you don't surrender - then if affords a leveraged death benefit or leveraged LTC benefit.

 

If a picture is worth a thousand words, then let me paint this to illustrate the superiority of LTC Extension of Benefit products.  Although each vessel will get you to the other side, the benefits/experience are entirely different.

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If you are buying a:

 

Canoe:  Chronic Illness Rider, No up-front charges, 101(g), then you are selling Life Insurance. Regulations prohibit you from describing or marketing the Chronic Illness benefit as long-term care.  Only a fraction of the death benefit may be eligible to be accelerated to help cover chronic illness expenses, and often there is no remaining death benefits. Amounts eligible for acceleration can vary significantly[1] and could be $0.00.

 

Boat: Chronic Illness Rider, Yes, up-front charges, 101(g), then you are selling Life Insurance. Regulations prohibit you from describing or marketing the Chronic Illness benefit as long-term care. The entire death benefit is eligible to be accelerated to cover chronic illness expenses or to be paid out as a remainder death benefit to beneficiaries.

 

Motorboat: Long-Term Care Rider, 7702B [2], then you are selling Life Insurance. These rides are qualified long-term care with built in consumer protections. They are permitted to be described and marketed as long-term care.  The entire death benefit is eligible to be accelerated to cover long-term care expenses or to be paid out as a remainder death benefit to beneficiaries.

 

Yacht: Extension of Benefits, 7702B, then you are selling both Long-Term Care Insurance and Life Insurance. The LTC component is qualified long-term care with built in consumer protections.  This product can be described and marketed as long-term care. The entire death benefit (base benefit) is eligible to be accelerated to cover long-term care expenses. In addition, a second pool of money (LTC Extension of Benefits) is also eligible to be accelerated to cover long-term care expenses.

 

The Extension of Benefit pool will pay monthly benefits for the duration selected such as an additional period of 2 years, 4 years, or 6 years (and in the case of one company payable for life). Inflation options can be elected which is vital to planning. If the base benefit is not used for long-term care, then it will be paid out as a death benefit to beneficiaries.

 

Trends

 

Within the context of a once in a 100-year pandemic combined with the rising cost of health care, a consumer demand for long-term care solutions will only continue to grow.  Then when we add that 12+ states are considering state mandated long-term care, it increases the likelihood that new insurance company entrants will capitalize by offering solutions which meet states' criteria. (In the case of Washington, Extension of Benefit products, LTC riders and Traditional Long-Term Care insurance met the eligibility criteria to exempt residents from the payroll tax.  

 

The monthly LTC benefit amounts can be increased or the number of months for which the stated LTC benefit is paid out can be prolonged subject to non-guaranteed assumptions. 

 

Predictions

 

Based on state filings of LTC Extension of Benefit products, we can predict:

  • More insurers will enter this market

  • Lower Return of Premiums in return for Higher Monthly LTC benefit amounts

  • Extended pay premium options such as 15-year, 20-year, and premiums payable for life

  • Waiver of Premiums for Extended pays

 

Summary

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The genetic market distinguishing LTC Extension of Benefit products from LTC riders and Chronic Illness riders is their ability to extend long-term care benefits beyond the death benefit.  So, what's in a name?  Everything. We would be happy to discuss these differences with you and provide multiple quotes for you based on your particular situation and objectives.

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