Life/LTC Combo Products Are NOT Cheaper Than Stand-alone LTCi Policies

[Mr_Ed]

Why would anyone with common sense think that a life insurance policy that guarantees a payout would be less expensive than a stand-lone LTCi policy that may or may not pay a benefit.

Today I read this baloney:

"A client is interested in long-term care insurance and you come back with premium that almost sends the person into cardiac arrest. The price is shocking, way more than the prospect expected or can afford, and who, disappointed, writes it off and you write off the sale.

Not necessarily. Here’s where a linked benefit, a long-term care rider in this case, can get the coverage the client wants at an affordable price and you make the sale. It’s an example of clients getting more than they ask for — whether it’s term life or permanent insurance, they have a death benefit plus the opportunity to access the face amount for long-term care.

Clients embrace linked benefits because they add value by offering living benefits at a modest increase in cost."


When comparing similar LTC benefits, Life/LTC policies are NOT cheaper than a stand-alone LTCi policy. In fact, 9 times out of 10 a Life/LTC policy will be 2x to 3x the premium of a stand-alone LTCi policy.

I just ran a quote for a 61-year old couple sharing $250,000 of LTCi benefits: $5,000 monthly benefit, 90 day calendar day elimination period and no inflation growth.

If they buy a stand-alone LTCi policy it will cost them a combined annual premium about $2,241 per year (it will be 15% less if they can get the preferred health discount).

If they buy a Life/LTC policy it will cost them $4,432 (almost TWICE the premium). This policy would pay a death benefit of $125,000 after the death of the second spouse if neither spouse made an LTC claim.

can we please stop telling consumers (and other agents) that Life/LTC policies are cheaper than stand-alone LTCi.

Life/LTC policies are usually 2x, sometimes even 3x, more expensive than a stand-alone LTCi policy with comparable benefits.


mr ed

 

[DHK]

Let's also not forget the tax consequences of accelerating a death benefit from a life policy. In short... life/LTC combo policies are NOT NECESSARILY "tax free".

 

[Mr_Ed]

Let's also not forget the tax consequences of accelerating a death benefit from a life policy. In short... life/LTC combo policies are NOT NECESSARILY "tax free".

Indeed.
Plus:

1) Life/LTC policies are not Partnership Qualified and do not provide any asset protection if they run out of benefits.

2) When cashing out a Life/LTC policy, income tax is payable on the gain in the policy which was used to pay the LTCi rider.

3) The Life portion of the premium is NOT tax deductible. Depending upon how the policy is set up, the LTC portion may not be tax deductible either. Of course, LTCi premiums are tax deductible--these tax rules are especially favorable to business owners who are the target market for LTCi.

4) And, unless a no-lapse guarantee is purchased a Life/LTC policy can lapse.

 

[LGilmore]

I agree. The times I have presented a life/ltc combo.... it made the decision to buy just an LTC that much easier, even with future rate increases.

It was sort of you can pay 4x the premium now, with no future increases or you can pay for this LTC which will increase over time..... most, actually all chose the latter option.

 

[Robert Barney]

I sent a link to this thread to one of my subscribers who does not participate here. He had told me last week, in a phone conversation, that he likes these products. He emailed me his comments, in response to the thread premise, which I share here:

That’s absolutely true. However, price is only relevant in relation to value. With the Hybrid design, you’re buying a pot of money that WILL be delivered to you if you need it for LTC, and to your family if you don’t. If you need some, the balance goes to your family. 2/3 of us will need LTC, but 1/3 of us will not. And even the 2/3 that do, may not need it for long… some end up not needing long enough to even satisfy the typical 90 day waiting period. Those people, who may have “saved” money by buying a traditional LTC policy versus a Hybrid design, will have wasted 100% of their premium as they will have received NO benefits from the policy. Further, they move forward from the date they purchase it, with no premium guarantee. Premiums on traditional LTC policies can, and do, unfortunately rise from time to time. Hybrid products can be designed with guaranteed level premiums for life. Bottom line, the Hybrid product is a guaranteed winner for most people, as they can’t live long enough to make a bad deal out of it. The benefit will be paid, one way or another. Traditionl LTC while less “expensive”, can easily turn out to be a total waste of money if no benefits are ever paid out.

​

 

[Mr_Ed]

I sent a link to this thread to one of my subscribers who does not participate here. He had told me last week, in a phone conversation, that he likes these products. He emailed me his comments, in response to the thread premise, which I share here:

That’s absolutely true. However, price is only relevant in relation to value. With the Hybrid design, you’re buying a pot of money that WILL be delivered to you if you need it for LTC, and to your family if you don’t. If you need some, the balance goes to your family. 2/3 of us will need LTC, but 1/3 of us will not. And even the 2/3 that do, may not need it for long… some end up not needing long enough to even satisfy the typical 90 day waiting period. Those people, who may have “saved” money by buying a traditional LTC policy versus a Hybrid design, will have wasted 100% of their premium as they will have received NO benefits from the policy. Further, they move forward from the date they purchase it, with no premium guarantee. Premiums on traditional LTC policies can, and do, unfortunately rise from time to time. Hybrid products can be designed with guaranteed level premiums for life. Bottom line, the Hybrid product is a guaranteed winner for most people, as they can’t live long enough to make a bad deal out of it. The benefit will be paid, one way or another. Traditionl LTC while less “expensive”, can easily turn out to be a total waste of money if no benefits are ever paid out.

​

My concern, Robert, is how it is presented to the consumer.

I've seen where an agent will show an LTCi policy with a 3% compound inflation benefit for $4,000 per year and they will compare that to a Life policy with an LTC rider that has no inflation benefit that also costs $4,000 per year.

The agent who does that is either ignorant of the difference in benefits or the agent is intentionally misleading the consumer. Since I choose to believe the best of people, my conclusion would be that the agent is just ignorant of the difference in benefits.

The only reason the Life/LTC policy is chosen by the consumer is because they think they are getting better benefits for the same premium.

If, on the other hand, they are shown an accurate comparison:

Life/LTC policy with no inflation benefit, $5,000 monthly benefit and a $250,000 lifetime maximum for $4,000 per year

vs.

LTCi only policy with no inflation benefit, $5,000 monthly benefit and a $250,000 lifetime maximum for $2,000 per year, nine consumers out of ten will pick the LTCi only policy.


Statements like the following are just false:

"...Clients embrace linked benefits because they add value by offering living benefits at a modest increase in cost."


It is NOT a modest increase in cost! The Life/LTC policy is DOUBLE the cost.

 

[LGilmore]

Bob does have a point, but does the very high additional premium for LTC, which doesn't really effect the life payout as in say collecting an extra 100k if you die before using the ltc side worth it? Maybe in some cases as it does freeze the premium and for some that's a great thing.

As with any of this stuff, good agents take a look at several options and then put together what should work best for the client.

I have just found professionally that the people looking for LTC already have well established life policies and the need for additional Life coverage is secondary to the LTC plan. You don't really run across too many LTC clients who don't have life insurance.

 

[maxherr]

Part of the problem with most of this discussion is the fact that no one is mentioning ages of individuals while they're busy tossing around premium figures. LTCI policies for persons age 60 or older are not going to have premiums of as little as $4000.

I'm not convinced that life policies with LTC riders are all that they're hyped up to be. But, then again, in the right circumstance, they will save certain persons a fair amount of cash. It's important to remember that insurance products are designed to do one thing, and riders are added to make them do other things they weren't really intended to do.

Why? To direct the cash flow to the insurance company instead of into another product designed to do that something else.

When the sale is made on the basis of the benefits of the rider(s) rather than the benefits of the underlying policy, that's when consumers get taken advantage of. Then again, there are many new agents who don't understand a thing about what they're marketing, and simply reciting words they've heard someone else say, and they have no clue whether the communication is accurate or even factual at all. Much the same as radio, TV, and newspaper reporters who fail to do any fact-checking before they publish a story.

 

[scagnt83]

LTCI policies for persons age 60 or older are not going to have premiums of as little as $4000.

Not true at all. It just depends on the benefits chosen. Not all clients need to insure for the entire risk.

 

[maxherr]

Obviously, we're not talking about minimum benefit contracts, are we? I'm talking about a policy that will provide substantial daily coverage for 4 or more years. In CA, that means not less than $200-$300 per day, not a $70 minimum daily benefit.

I suppose LTCI in other states may be lower cost, but here in CA I only recommend Partnership policies, which, of course must include inflation protection, and there are only a handful of companies still in the game, like Genworth. But an LTCI policy without inflation protection, in my opinion, is next to worthless. Since the cost of a Partnershp policy is no different than a standard LTCI policy with the same specifications from the same company, it makes no sense not to market the Partnership policy.