Hybrid Life Insurance With Care Riders Versus Hybrid Life And Long Term Care Insurance – Part 1 – Long Term Care University – 03/15/23
Long Term Care University – Question of the Month – 03/15/23
Research
By Aaron Skloff, AIF, CFA, MBA
Q: We read the Long Term Care University article that compares ‘Traditional Versus Hybrid Life and Long Term Care Insurance’ and ‘Not All Hybrid Life And Chronic Illness And Long Term Care Insurance Policies Are The Same’ Part 1 and Part 2, and prefer the Hybrid Long Term Care Insurance (LTC) policy. Can you give us examples of premiums and benefits of these policies?
Overview. Hybrid Life Insurance policies with care riders like Chronic Illness and LTC, as well as Asset Based Hybrid Life and LTC Insurance policies provide guaranteed benefits and guaranteed premiums. The insurance company either: 1) pays you if you need care, 2) pays your heirs if you do not need care, or 3) pays you and your heirs if you need a modest amount of care.
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The Problem – Oftentimes Hybrid Life Insurance Policies are Lumped Together with Little to No Explanation as to How They Differ
Although most Hybrid Life policies appear the same on the surface, there are many differences.
The Solution – Understanding the Various Policies and Comparing Them Side by Side
The best way to identify the strengths and weaknesses of the policies is to see what benefits they provide under various scenarios.
Asset Based Hybrid Life and Long Term Care Insurance. This type of policy provides a multiple of care benefits to death benefits (“5:1 ratio policy” or “10:1 ratio policy”). For example, if the care benefit is $500,000, then the death benefit is $100,000. The rations vary but represent a multiple of care to death benefits. The death benefit is reduced by $1 for each $1 of care benefit received. The premium reflects the risk the insurance company will pay between $0 and $500,000 of care benefits or just $100,000 if you do not need care. Part of the premium can be expensed as an LTC policy by a business, or used as an itemized deduction by an individual.
Hybrid Life Insurance with Long Term Care or Chronic Illness Rider. This type of policy provides an equal amount of care benefits as death benefits (“1:1 ratio policy”). For example, if the care benefit is $300,000, then the death benefit is $300,000. The death benefit is reduced by $1 for each $1 of care benefit received. The premium reflects the risk that the insurance company will pay $300,000, whether or not you need care. None of the premium can be expensed as an LTC policy by a business, nor used as an itemized deduction by an individual.
Bill and Sue Example. Let’s look at a husband and wife, Bill and Sue, who are each 55 years old, in average health (“Standard”) and reside in Texas. They are looking for policies with a single $100,000 premium per person. On the Hybrid Life Insurance policies with care riders they want access to the death benefit at a rate of 4% per month. On the Asset Based Hybrid Life and LTC policies they want to maximize their monthly LTC benefit and total LTC benefit, based on needing care at age 80. We examine three types of policies, estimating care at age 80.
Asset Based Hybrid Life and Long Term Care Insurance. With Brighthouse SmartCare, Bill will have $13,358 monthly and $1,090,308 total LTC benefits, while Sue will have $9,179 and $749,255, respectively. With Lincoln MoneyGuard Fixed Advantage, Bill will have $13,980 monthly and $1,141,031 total LTC benefits, while Sue will have $10,807 and $838,825, respectively. With Securian Minnesota Life SecureCare III, Bill will have $15,378 monthly and $1,168,757 total LTC benefits, while Sue will have $13,145 and $999,046, respectively.
With Nationwide Care Matters II , Bill will have $13,816 monthly and $1,127,710 total LTC benefits, while Sue will have $10,090 and $783,211, respectively. With OneAmerica State Life Asset Care, Bill and Sue will each have $9,909 monthly or $8,625 monthly with 3% compound inflation protection, and unlimited total LTC benefits. See the policies in green in the chart below.
Hybrid Life Insurance with Long Term Care Rider. With Nationwide No-Lapse Guarantee UL II, Bill will have $7,417 monthly and $185,430 total LTC benefits, while Sue will have $7,489 and $187,220, respectively. See the policies in blue in the chart below.
Hybrid Life Insurance with Chronic IllnessRider. With Securian Eclipse Protector II IUL, Bill will have $12,284 monthly and $307,103 total LTC benefits, while Sue will have $13,495 and $337,366, respectively. See the policies in orange in the chart below.
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Action Steps. Since premiums vary greatly based on type of riders, age, health and marital status, request individualized quotes.
Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA) charter holder, Master of Business Administration (MBA), is the Chief Executive Officer of Skloff Financial Group, a Registered Investment Advisory firm. The firm specializes in financial planning and investment management services for high net worth individuals and benefits for small to middle sized companies. He can be contacted at www.skloff.com or 908-464-3060.
