Why (mostly) Everyone Is Buying Hybrid LTC Policies Today

[ltcadviser]

William Baldwin's thoughts earlier this week.

The idea with an LTC policy is that you start when you’re healthy and young, like at age 50, and pay a fixed premium for many years. Keep up the payments and the insurer can’t kick you out if your health deteriorates.

There’s a catch. The insurer has the right to raise the premium down the road. A lot of them have done that, sometimes by savage amounts. Then you have a choice. You can pay the higher rate and keep your benefit. Or you can keep the premium where it is and see your coverage cut. Or you can drop out, losing all the money you’ve put in.

Can you imagine buying a house this way? You borrow $210,000 at 4% and promise to pay $1,000 a month for 30 years. Fifteen years in, the bank announces that it’s raising your mortgage payment to $1,800. If you complain, you are informed that you can keep the payment at $1,000 by moving to a smaller house.

That would be a ridiculous way to write a mortgage contract. It would be ridiculous in a whole-life policy. I think it’s ridiculous in nursing home insurance.

7 Rules For Wealth #3: Long-Term Care End Run

 

[fed up]

One day, the insurance companies of America, will design a hybrid that is a true life/ltc product or the income rules will change so that life payouts taken before death are untaxed or they will allow the db to be paid if the ltc plan was not enacted. Until then the current hybrid of dump 100K into a ltc policy so you can gain 300K of ltc benefits or 300K of life does not work for far too many people. They don't have the 100K or don't want to raid the 401.
A 500 per month premium takes a long time to reach that same 100k dump when so many people wait until late in life to think about ltc. Someone will figure out a way to make my dream of a hybrid work. Until then you just extend the elimination period if you need to keep the premiums down

 

[Tahoe Ray]

One day, the insurance companies of America, will design a hybrid that is a true life/ltc product or the income rules will change so that life payouts taken before death are untaxed or they will allow the db to be paid if the ltc plan was not enacted. Until then the current hybrid of dump 100K into a ltc policy so you can gain 300K of ltc benefits or 300K of life does not work for far too many people. They don't have the 100K or don't want to raid the 401.
A 500 per month premium takes a long time to reach that same 100k dump when so many people wait until late in life to think about ltc. Someone will figure out a way to make my dream of a hybrid work. Until then you just extend the elimination period if you need to keep the premiums down

I'm not sure that I understand what you're trying to say here but most hybrid products don't require a single premium payment. They can be paid over 5 years, 10, or even lifetime.

 

[fed up]

I have asked numerous LTC agents for a vanilla plan and always get proposals for hybrid plans calling for 50-100K dump ins. Having cared for 3 seniors in my home over the last 9 years I now know how to become a PITA to my kids

 

[Tahoe Ray]

I have asked numerous LTC agents for a vanilla plan and always get proposals for hybrid plans calling for 50-100K dump ins. Having cared for 3 seniors in my home over the last 9 years I now know how to become a PITA to my kids

You haven't asked the thread starter...

Did you tell the agents that you'd like to pay over a longer period?

 

[fed up]

Every time

 

[DHK]

Can you imagine buying a house this way? You borrow $210,000 at 4% and promise to pay $1,000 a month for 30 years. Fifteen years in, the bank announces that it’s raising your mortgage payment to $1,800. If you complain, you are informed that you can keep the payment at $1,000 by moving to a smaller house.

Ever heard of an adjustable rate mortgage?

 

[ltcadviser]

One day, the insurance companies of America, will design a hybrid that is a true life/ltc product or the income rules will change so that life payouts taken before death are untaxed or they will allow the db to be paid if the ltc plan was not enacted. Until then the current hybrid of dump 100K into a ltc policy so you can gain 300K of ltc benefits or 300K of life does not work for far too many people. They don't have the 100K or don't want to raid the 401.
A 500 per month premium takes a long time to reach that same 100k dump when so many people wait until late in life to think about ltc. Someone will figure out a way to make my dream of a hybrid work. Until then you just extend the elimination period if you need to keep the premiums down

I am not sure I am following you either. Most of the hybrids I design can leverage $100,000 into ~$1 million +++ of LTC; The DB is minimized to function as ROP. The acceleration of the DB for LTC is untaxed.

Anyway, most people calling me are ages 45-65 and do have money.

 

[ltcadviser]

Ever heard of an adjustable rate mortgage?

Without a cap on the adjustment? No, I do not believe I have heard of such an instrument.

 

[kpbdy99]

So... 60-year old female, single, $4,500 monthly benefit, 3 Year BP, 3% Compound, $108K DB, and by age 85, she has $350K for LTC, payable as a monthly cash benefit of $9,422 per month. Costs her $6,476 per year for life, guaranteed never to change.
Same plan using stand-alone LTCI - $2,788 per year, reimbursement benefit, premiums may change, but since it's a fairly recent rate series, it's not going to be by tons. Obviously there's no death benefit.

She lives to 90 and just dies, assuming no rate changes, she's put $83,640 into the stand-alone LTCi plan.
She lives to 90 and just dies, she's put $194,280 into the policy, but $108K comes back, so a net cost to her of $86,280.

Net cost is about the same either way, so it's going to boil down to personal preference and what the client is most comfortable with, AND, whether or not the client is concerned with PARTNERSHIP protection, which many hybrid buyers are NEVER TOLD ABOUT.