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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]
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