Popular LTCi Products - Part 2

You can access all of the LTC planning tools shown in this article with a 30-day free trial to the Buddy System. Sign up here: https://app.buddyins.com/signup

"Information is liberating." - Kofi Annan

Welcome to another special edition of LTC Insurance Community News. This is part 2 in a multi-part series where we will be covering popular types of LTC insurance solutions including:

• Part 1: Traditional LTCi
• Part 2: Individual Life Hybrid with LTCi Extension
• Part 3: Group Life Hybrid with LTCi Extension
• Part 4: Short Term Care Insurance
• Part 5: Annuity Hybrid with LTCi Extension
• Part 6: Life Hybrid with LTCi Acceleration

LTCi solutions today have evolved to meet ever changing client and carrier needs.

Part 2 - Individual Life Hybrid with LTCi Extension

Good pricing and benefits, but tighter underwriting.

According to new product sales data, for clients in good health, about half of clients choose traditional LTCi and half choose life hybrids with LTC extension riders.

Carrier specific product details can be found in the Buddy System at https://app.buddyins.com/individual

Hybrid products have grown in popularity in response to the challenges of the traditional LTCi marketplace. They generally have guaranteed premiums mitigating the concern of rate increase risk. They also generally have guaranteed and tax-free benefits, which may be better than self-funding and taking on investment volatility at the time when funds are needed for care. If LTC is needed, there is significant insurance leverage. If LTC is not needed, then the client receives a death benefit or can later use the cash value from the policy.

There are over 100 types of hybrid policies. I'll separate Life hybrids into two basic categories for the purpose of this series as not all Life hybrids are created equal when it comes to LTCi benefits.

1. Life Hybrid with LTCi Acceleration: These life insurance policies have so-called living benefits, which accelerate a portion of the death benefit to be received early based on a chronic illness, critical illness, and/or terminal illness. The chronic illness rider can be filed as LTC insurance through IRS section 7702(b). Often these riders allow all or most of the death benefit to be used for LTC benefits reducing the death benefit and cash value dollar-for-dollar. The chronic illness rider is filed as a life insurance feature through IRS section 101(g). These riders may have less standardized contract language, accelerate only a portion of the death benefit, or require permanent disability. Learn more about 7702(b) by reading this article: 7702(b) or Not to Be: Why 7702(b) Matters for Long-Term Care Planning
2. Life Hybrid with LTCi Extension: These life insurance products have more of an LTCi focused benefit structure by not only accelerating the death benefit for long term care, but also adding an LTC extension beyond the original death benefit. It's almost like adding a standalone LTCi product to extend the duration of the LTCi benefits. The acceleration and/or extension on these products often includes inflation growth of the LTCi benefits. Usually, the most popular way to design these products is to minimize the life insurance features in order to maximize the premiums that fund the LTCi benefits. As a result, some plans offer 10 times more LTCi benefits than the life insurance death benefits or cash values, which are payable on a longer duration LTCi claim.

These products now have competitive offerings in all 50 states. This article will focus on the Life Hybrid with LTCi Extension, which has much more of the premium dedicated to the LTCi features. We will cover other hybrids in later parts of this series.

More life hybrids have been developed with flexible premium structures, funding strategies, and benefit designs. Like traditional LTCi, life hybrid plans are often more careful with health underwriting. LTCi specialists typically compare both traditional LTCi and hybrid life extension products side-by-side for their healthier and wealthier clients.

?? Case Story: Sharada is a female entrepreneur approaching 50 years old and in good health. She owns several successful businesses generating cash flow allowing her financial freedom. Unfortunately, her mother has been progressively deteriorating with Alzheimer's disease. As the closest to her mom of her two siblings, she felt the responsibility to provide the care for her mother. After many years struggling to provide care, run her businesses, and keep her marriage intact, she finally made the tough decision to move her mom into a high end assisted-living facility that specializes in cognitive care. Her mother's lifestyle has dramatically improved, and Sharada has her life back again. She did end up getting divorced, and with no kids, she is concerned about her own care in the future. Sharada's experience with her mother has given her a strong motivation to explore her own LTC plan and insurance policy.

?? LTCi Solution: Hybrid LTCi Compared to Traditional LTCi

• Sharada chose Life Hybrid with LTC Extension.
• She decided to budget $10,000 payable over 10 years with the goal to choose the policy that provides the most LTC benefits for her premium dollar.
• Her LTCi specialist compared both Hybrid LTCi and Traditional LTCi policies side-by-side.
• She was surprised to see that the Hybrid LTCi delivered far more LTC benefits in the future than the traditional LTCi policy.

?? Value Proposition: Hybrid LTCi Compared to Self-Funding

• Sharada also compared the plan to self-funding at a 5% rate of return. Given that she deducts the premiums each year through her business and the overall insurance leverage in the policy, she could receive far more protection than self-funding alone.
• She can deduct the LTC portion of the premium, only offer the plan to herself as the CEO of the business, and still receive the LTC benefits tax-free.

Life + LTCi Extension Rider Breakdown

?? Sweet Spots:

• Premiums for most products can be paid with single pay through 10-pay. A few carriers have longer premium payment structures, which are growing in popularity and make the products more affordable for the mass affluent.
• Guaranteed premiums and death benefits
• Cash indemnity benefits are available from several carriers, which requires no receipts. International benefits tend to be better from these same carriers.
• Life-to-Life tax-free 1035 exchanges and tax advantages are available on both the Life and LTC portion of the premiums
• Female clients get relatively better value because the life insurance premium cost offsets the extra cost of the LTC premiums for females.
• Tax advantages for business owners and HSA/HRA funding.

?? Cautionary Area:

• Initial Affordability: The shorter premium payment structure and life insurance premium costs can create a higher entry level price point. However, one way to position this is as a pre-payment of future premiums given LTC insurance is rarely lapsed anyway.
• Older ages: For clients that purchase at older ages, the life insurance chassis can get more expensive reducing the leverage available on the LTC benefits.
• Underwriting: Both life and LTC underwriting can disqualify many clients based on health, although more carriers are allowing streamlined underwriting particularly at younger ages.

?? Sample Products:

• Nationwide CareMatters II, YourLife CareMatters, and CareMatters Together (UL)
• OneAmerica AssetCare series (WL)
• Lincoln Financial MoneyGuard Fixed Advantage (UL) and Market Advantage (VUL)
• Securian SecureCare III (WL), and coming soon, SecureCare CA (UL)
• Brighthouse SmartCare (IUL)
• Thrivent CareForward (WL)
• New York Life AssetFlex (WL)
• Northwestern Mutual Long-Term Advantage (WL)
• MassMutual CareChoice series (WL)

?? Up Next: Part 3: Group Life Hybrid with LTCi Extension

You can access all of the LTC planning tools shown in this article with a 30-day free trial to the Buddy System. Sign up here to design your own plans or review the products in detail: https://app.buddyins.com/signup