Life Insurance with LTC Features?

[RetireeRobert]

Read somewhere about life insurance where one can get LTC benefits. Not sure if the Life part transmorgified into LTC at some point or on request or what.

Recently dropped a life insurance policy due to sufficient assets to protect family. Been thinking about spending those saverd premium dollars on LTC.

Then recalled something about policy where one can get both types coverage.

Anyone shed any light on this? Or was I just dreaming?

 

[brewer12345]

Ick. The worst of both worlds: inadequate LTC protection for a disaster scenario plus very, very expensive policies. More of a sales gimmick than a useful product.

 

[wahoo_tiger]

Life insurance with LTC

Interesting response, Brewer. Would that be backed by looking at real numbers?

Hancock, Hartford, Nationwide, and I believe Genworth offer LTC riders on their permanent life policies. All advance a portion of the death benefit if you qualify for LTC. This usually means loss of two of six activities of daily living, or cognitive loss. I have found that these riders are usually a good deal less expensive than a stand-alone LTC policy. Because of how the riders pay, Nationwide's policy will work in an irrevocable trust. The other companies do not recommended that their policies be owned outside your estate.

The cost of chronic care is a potentially large post-retirement medical cost. Using this type of policy helps you transfer some or all this risk to an insurance company in the life insurance you use for a legacy to your family. It's there if you need and you haven't "lost" all the premiums for an LTC policy if you don't.

 

[brewer12345]

As with most products where the pitch sounds appealing, I suspect that there is little meat on the bones here. I haven't intimately reviewed any of these policies and the numbers don't mean that much, since most of these are some flavor of UL where the insurer has considerable leeway to jack up expenses or reduce crediting rates if they choose to do so.

The reason these riders are less expensive than a standaloe LTC policy is twofold:

1) the cost to originate and service the rider is a LOT less than a stand alone LTC policy
2) The benefit amount is generally capped at the face amount, which means that the insurer is on the hook for less $$$.

I guess another possible reason is that the insurer would be shielded from the insured buying such a policy in the interest of reselling to an investor.

Frankly, I am not all that crazy about LTC insurance in the first place. It is expensive and still in its inf ancy as a product. I am also not all that sure that the companies selling it really know how to price it properly. We'll know for sure in 25 years, but in the meantime many companies could be jacking rates for years to come. That means that a lot of the risk ultimatley rests with the buyer of the coverage.

 

[wahoo_tiger]

I think that LTC is priced as it is because of adverse selection. The people buying it (usually age 60+) have a high chance (25%+) of needing it. And you are right that most people won't buy it because of the price or because they might not need it.

The cost to originate and service the rider is spread over the life and LTC portions of the policy, so I guess that that it is "cheaper" as a result. It might also be that the companies figure that a person buying life insurance and LTC in combination might be in some way a lower risk. I don't know that to be the case but I could think of scenarios where it would make sense.

The benefit amounts are capped by Federal LTC benefit limits. Some policies will pay up to twice the death benefit amount. These riders do not provide inflation protection like stand-alone LTC.





The reason these riders are less expensive than a standaloe LTC policy is twofold:

1) the cost to originate and service the rider is a LOT less than a stand alone LTC policy
2) The benefit amount is generally capped at the face amount, which means that the insurer is on the hook for less $$$.

I guess another possible reason is that the insurer would be shielded from the insured buying such a policy in the interest of reselling to an investor.

Frankly, I am not all that crazy about LTC insurance in the first place. It is expensive and still in its inf ancy as a product. I am also not all that sure that the companies selling it really know how to price it properly. We'll know for sure in 25 years, but in the meantime many companies could be jacking rates for years to come. That means that a lot of the risk ultimatley rests with the buyer of the coverage.[/quote]