Long-Term Care Options Part 2: Linked Benefit/Hybrids

By Jackie Slaughter, Associate Director, Long-Term Care

  • Originally published January 18, 2013 , last updated January 15, 2018
Long-Term Care Options Part 2: Linked Benefit/Hybrids

The long-term care insurance (LTCi) market has experienced a year of change. Carriers have pulled out of the market; the ones that remain are revising the traditional coverage to a more flexible plan after finding the cost of care to be too steep. Meanwhile, benefits are being revised and premiums have increased.

LTCi is not an easy sell. It can be expensive and difficult to qualify for, and it can be a hard conversation to have with clients who aren’t ready to consider that they could eventually need LTC.

Despite these hurdles, LTC insurance has never been more important. It can help save your clients’ retirement. It can help save families a lot of stress and hardship. That is what is important. We don’t look at these changes as a reason to stop talking to your clients about LTC. We look at them as the reason you should help them explore all their options when it comes to funding their long-term care risk. It’s up to you, the agent, to help them find the plan that is right for their family and their budget.

This blog series will explore the different options available to your clients, including traditional LTCi, linked benefit products, short-term care and stand-alone home health care. Each blog will lay out details about each option so you are armed with the knowledge of when to use which one.

What Are Linked-Benefit Products?

The long-term care insurance (system, market, structure) has evolved in recent years and now carriers are offering linked-benefit policies, also referred to as “hybrids.” These products have several design variations. Genworth’s Total Living Coverage (TLC), for example, links a long-term care rider with a universal life policy.

To varying degrees, these products essentially allow the consumer to get double duty from their retirement dollars, using them to build cash value tax-deferred and, if needed, fund their long-term care need. Typically, hybrids are priced cheaper than stand-alone products, though the LTCi benefits are not as comprehensive.

Pros and Cons

Pros

  • With a hybrid, clients are able to maintain control over their funds. With a hybrid, money not used for LTCi can be taken as income or as a death benefit.
  • Hybrids are a perfect answer to the “What if I don’t use my long-term care insurance?” objection.
  • Hybrids are less expensive than an income annuity and an LTCi policy purchased separately because they pool two very different risk groups. People who expect to live longer tend to purchase annuities, while those who are looking to cover themselves for LTC expenses are probably doing so for a reason: they expect to face disability sooner. Hybrid annuities combine those opposing risk groups, which would lower the cost.
  • Generate tax-deferred gains.
  • Can be easier to qualify for than stand-alone LTCi. If you have prospects who don’t qualify for LTCi, a hybrid product may be a good second option for them.

Cons

  • Generally require the beneficiary to spend down their own death benefit or cash value in the policy before insurance payments kick in.
  • Do not qualify for Partnership Benefits.
  • Could be difficult for the client to understand.
  • Do not offer the comprehensive benefit options of a stand-alone LTCi policy.
  • May have to pay surrender fees for withdrawals taken within the surrender period.
  • Require significant amount of capital to get coverage in the first place. Clients can’t space payments out over time.

Case Study

Meet Helen.* Helen is in good health, has been married for 30 years and she and her husband have two children. After 25 years as a plastic surgeon, she retired last year with over $300,000 of available assets. With the coverage and protection of TLC, she is better prepared to confront any of these four situations. Helen purchased a TLC policy at age 60 and was able to leverage her $100,000 initial premium almost 6 times for a total of $378,000 in total long-term care benefits and a $126,048 Initial Specified Amount. Helen has up to $5,252 each month to pay for covered LTC expenses for 6 years (longer, if the monthly maximum is not used every month).

What if Helen never had a long-term care event? Because Helen did not need LTC benefits, she was able to leave a $126,048 tax-free death benefit to her husband as her beneficiary.

*This is a hypothetical example

Sales & Marketing

Look for clients who:

  • Are between age 55 and 75.
  • Want to protect assets from potential long-term care expenses and leave something behind for their beneficiaries.
  • Have high net worth. Individuals with investable assets of $300K or more. Average initial premium for the TLC policy is $75K.
  • May have a term life insurance policy that is expiring. As we age, our life insurance needs change. Early in our lives, we recognize the need to replace our income and enable our family to maintain its current lifestyle or pay off mortgage and other debt. This is when many people buy a term life policy. By the time their term life policy nears its expiration, they are in a different phase in life, and their needs may have changed. Now they may be more concerned about protecting their savings and income against potential LTC expenses and don’t need as much of a death benefit. For them, TLC may be a perfect fit.
  • Are self-insuring against a potential LTC event. Clients who have set aside significant assets to pay for long-term care can reposition a portion of those assets to a TLC policy. Doing so will provide them with more protection by instantly leveraging their premium and freeing up the remainder of those assets to spend as they choose.
  • Are in good health. TLC offers a preferred health discount of up to 15% off LTC monthly charges, subject to underwriting approval.
  • Are part of a couple. TLC offers a 20% discount off LTC monthly charges to couples who apply together and a 10% discount if only one individual in a couple applies.

*Information from Genworth

If your client:

  • Has cost-based refusals to LTCi
  • Is afraid they’ll pay high premiums for years and never need the coverage
  • Prefers a single-premium payment to avoid the risk of premiums increasing in the future
  • Has a significant lump sum that can be used to purchase a hybrid policy

Again, the stand-alone LTCi policy may be the best solution for protecting your clients, but hybrid products are the next-best solution in terms of benefits and may answer many of the objections your clients have.

For more information on LTCi and hybrid products call a marketing consultant

LTCi Department 1-888-456-8884 (option 4)
Annuities Department 1-877-645-4939
Life Department 1-877-888-0166