|Group Life & LTC Combinations: New Options for LTC Planning|
by Steven M. Cain
When it comes to long-term care insurance (LTCI) as an employee benefit, the overwhelming choice has been standalone LTCI products—whether offered via a group chassis or multi-life basis. Current voluntary product offerings include Genworth, Transamerica and LifeSecure (BCBS of MI).
However, there is a new option for LTC planning available to groups. The new option is life insurance combined with LTCI. These plans have been growing in popularity and offered in the individual insurance market for a number of years.
Why are these products gaining interest? For a few reasons. First, pure LTCI has a "use it or lose it" structure that some people don't like. On the other hand, a combination life/LTC plan will always pay either a death benefit or a LTC benefit as long as premiums are being paid. Another reason that people like these plans is that a younger buyer can be sure their family is protected at an early age while also investing in LTC protection that may be needed after retirement. For most people, as they age, their life insurance needs decline (as their children leave the house and become self-sufficient), but their need for LTC planning grows. Finally, a major appeal of some of the life/LTC plans is premium stability. It's a well-publicized fact that many LTCI carriers are raising premiums for current participants on group plans, including the biggest group plan—the federal employees program. Although current products are priced to avoid future rate increases, it is likely that many potential buyers of LTCI at the worksite will be concerned about rate increases. Some of the life and LTC product combinations offer guaranteed premiums, which will appeal to this group.
How does life/LTC plans work? Let's compare one plan available in the market including a lifetime benefit term plan with an accelerated LTC rider to one with an extension of benefit LTC rider. With this plan, participants select a dollar amount of coverage—let's say $100,000. Premiums would be guaranteed for the lifetime of the policyholder, and premiums would be fully paid up at age 100. If the policyholder dies, the beneficiary gets the $100,000. If the policyholder needs LTC during their lifetime, the plan would allow for a monthly acceleration of the death benefit at 4% of the death benefit ($4,000) for 25 months. After the death benefit is exhausted, the policy then pays an extension of the benefit rider for up to an additional 50 months. The total LTC benefit available is $300,000.
The rider is a tax-qualified LTCI rider, which means the benefit triggers are the same as standalone LTCI and benefit amounts are received tax free. The broker must have completed the required LTC training in order to be an agent on the plan. Underwriting, such as offering guaranteed issue (GI), depends on the characteristics of the group and the enrollment strategy—i.e. the "broker" is also underwritten.
Similar programs are available from several carriers, with many offering the life insurance on a universal life chassis.
Expect more options from carriers to enter the marketplace. Here are things to look for in a plan:
- Lifetime premiums are a must so the LTC benefit is available into old age—avoid any term life programs with a limited time period. Of course, guaranteed premiums are nice as well.
- Make sure the plan includes a tax-qualified LTC rider—which is superior to a chronic illness rider. Tax-qualified LTC riders pay the benefit tax free.
- Consider options for adding additional coverage to keep up with the cost of inflation—unlike most standalone LTC plans, automatic inflation increases are normally not included.
- Partnering with a firm specializing in LTC planning, including education and phone center support for enrollees.
Sure, traditional (standalone) plans offer the most LTC benefit for the dollar and possible tax deductions, but combining life with LTC may be worth a careful consideration.