What's Next After Long-term Care Insurance?

By Author: Dale Krause
Total Articles: 15
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In the last five years, 10 companies that were once in the top 20 market share in the long-term care insurance industry have bailed, according to Limra, an industry research group. The most recent to leave include Prudential Financial and Metlife. Most insurers have left the industry due to the changes in assumptions that were initially used to price the products. The assumptions include, but are not limited to, mortality, persistency, interest rates, and morbidity. The assumptions have not transpired in the manner the insurers expected, resulting in either a termination of sales or major premium increases for existing policyholders.

The industry realized that the needs of consumers and insurers were not being met with long-term care insurance policies alone. In response to this demand, insurers have designed what can be best described as hybrid or linked policies. These policies combine the benefits of an annuity or life insurance agreement with a traditional long-term care contract. With hybrid policies the consumer has the guarantee of long-term care benefits or, if no care is needed, the promise of insurance ...
... benefits to themselves and their beneficiaries.

Hybrid policies work in several ways. One type of policy links long-term care to a life insurance policy. The insured deposits a set premium into a policy. Depending on the age, gender, and health of the insured, an immediate pool of money is created for long-term care. At the same time, an immediate death benefit is created in life insurance.

Another example of these combination policies links long-term care benefits to a single premium tax-deferred annuity. This product begins as an annuity with either a lump sum deposit or structured deposits made over time. If no long-term care is needed the annuity gains interest and functions like any other fixed annuity. But if the owner/annuitant needs care in a nursing home or elsewhere, a formula will be used to determine the amount of the monthly benefit available to the owner/annuitant.

The newest addition to the hybrid marketplace is the long-term care annuity. This product also functions exactly like a fixed annuity but has a long-term care multiplier built into the policy; there is no return of premium rider attached to this medically underwritten annuity policy. Instead, a portion of the internal return in the contract is used to pay for the long-term care benefit. Long-term care coverage is calculated based on the amount of coverage selected when the policy is purchased. The insurance company offers a payout of 200% or 300% of the aggregate policy value over two or three years after the annuity account value is depleted. If long-term care is never needed the annuity value would then be paid out in a lump sum to any named beneficiary.