Question

7. What accounts for the slow growth of private long-term care insurance? What do you think of the new hybrid insurance policies that combine LTC coverage with a traditional life insurance benefit?

Answer 1

Long-term care insurance (LTC or LTCI) is an insurance product, sold in the United States, United Kingdom and Canada that helps pay for the costs associated with long-term care. Long-term care insurance covers care generally not covered by health insurance, Medicare, or Medicaid.

Individuals who require long-term care are generally not sick in the traditional sense but are unable to perform two of the six activities of daily living (ADLs) such as dressing, bathing, eating, toileting, continence, transferring (getting in and out of a bed or chair), and walking.

Age is not a determining factor in needing long-term care. About 70 percent of individuals over 65 will require at least some type of long-term care services during their lifetime.[1] About 40% of those receiving long-term care today are between 18 and 64. Once a change of health occurs, long-term care insurance may not be available. Early onset (before 65) Alzheimer's and Parkinson's disease occur rarely

.The primary advantages of these “hybrid” policies are that they offer tax-free reimbursements for qualified long-term care expenses; tax-free death benefits to your heirs if your LTC benefits are not fully used or needed; and a potential return of your premium if you change your mind down the road.

Let’s look at three common forms of hybrid life insurance policies with accelerated death benefit riders. Keep in mind that all riders, which are add-on features to enhance the underlying life insurance policy, must be decided at the time you purchase your policy and are factored into your total premium costs accordingly.

1. Life insurance with LTC death benefit acceleration rider: The benefit of this type of policy is that policy-owners may accelerate payments (i.e., take an advance) from their death benefit while they are still alive for qualified LTC needs. Under this acceleration of death benefit, the LTC benefit received will reduce the death benefit dollar for dollar. Once the death benefit is fully used up for LTC needs, the policy terminates. Any unused death benefit will be paid out to beneficiaries at the time of the insured’s death.

2. Life insurance with a chronic illness rider: This type of policy is very similar to the previous policy except some carriers will only accelerate death benefit payments for a qualifying, permanent chronic illness. A chronic illness refers to a condition with no medical cure such as heart disease, Parkinson’s, some cancers, etc.

The primary advantages of these “hybrid” policies are that they offer tax-free reimbursements for qualified long-term care expenses; tax-free death benefits to your heirs if your LTC benefits are not fully used or needed; and a potential return of your premium if you change your mind down the road.

Let’s look at three common forms of hybrid life insurance policies with accelerated death benefit riders. Keep in mind that all riders, which are add-on features to enhance the underlying life insurance policy, must be decided at the time you purchase your policy and are factored into your total premium costs accordingly.

1. Life insurance with LTC death benefit acceleration rider: The benefit of this type of policy is that policy-owners may accelerate payments (i.e., take an advance) from their death benefit while they are still alive for qualified LTC needs. Under this acceleration of death benefit, the LTC benefit received will reduce the death benefit dollar for dollar. Once the death benefit is fully used up for LTC needs, the policy terminates. Any unused death benefit will be paid out to beneficiaries at the time of the insured’s death.

2. Life insurance with a chronic illness rider: This type of policy is very similar to the previous policy except some carriers will only accelerate death benefit payments for a qualifying, permanent chronic illness. A chronic illness refers to a condition with no medical cure such as heart disease, Parkinson’s, some cancers, etc.

3. Linked benefit life insurance with extension-of-benefits (EOB) rider: This policy with EOB rider offers two distinct benefit pools such that LTC benefits may be paid out even after the death benefit has been completely depleted. The first benefit pool is an acceleration of the death benefit, which is available for monthly LTC benefits or as a death benefit. Once this first benefit pool is completely used up, and assuming the insured still has a LTC claim, monthly benefits will be paid from the second benefit pool, which may be up to three times more than the policy’s death benefit. Unlike the first pool, this second pool is available only for monthly LTC benefits.