Traditional Versus Hybrid Life and Long Term Care Insurance With Lifetime Premium Payments – Which Is Better? – Long Term Care University
Long Term Care University – Question of the Month – 10/15/23
By Aaron Skloff, AIF, CFA, MBA
Q: We read the Long Term Care University article ‘Traditional Versus Hybrid Life and Long Term Care Insurance’. We are concerned about long term care insurance premium increases. Can you compare Traditional versus Hybrid Life and Long Term Care (LTC) Insurance premiums paid over our lifetimes? Which is better?
The Problem – Increasing Premiums with Traditional Long Term Care Insurance Policies
Most Traditional LTC insurance policies have non-guaranteed premiums that can increase in the future. Many Hybrid Life and LTC insurance policies have guaranteed premiums that can never increase in the future.
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The Solution – Modeling Premium Increases on Traditional Long Term Care Insurance Policies
Although most Traditional LTC insurance policyholders have seen their premiums increase at a slower rate than their major medical health insurance and other insurance premiums, they are often unhappy with the increases. If they did not model premium increases, they may have to adjust their budgets to accommodate the new premium. Insurance companies generally waive premiums for policyholders receiving long term care benefits. Newer Traditional LTC insurance policies are priced higher than policies issued in the past, reducing the probability of large premium increases. To be conservative, model premium increases on Traditional LTC policies.
Numbers Speak Louder than Words. Let’s look at a husband and wife of average health that are each 55 years of age and reside in Maryland. They are comparing Hybrid and Traditional policies. Their goal is approximately $10,500 per month, per person for LTC in 25 years at the age of 80. They want an initial monthly benefit of $5,000 per month, with 3% compound growth and 6 years of care per person. They want to pay premiums over their lifetimes instead of making a single lump sum payment. They understand that premiums will be waived when they need care, which is expected at age 80. Let’s compare a Traditional LTC policy to a Hybrid LTC policy.
Mutual of Omaha MutualCare Custom Solution Traditional Long Term Care Insurance Policy. This is a reimbursement policy with non-guaranteed premiums. Bill will pay $2,882 per year and Sue will pay $5,314, for a combined premium of $8,196. They will each have 6 years of care with a monthly benefit of $10,469 per person and total benefit of $812,606 per person at age 80.
If neither of their premiums increase through age 80, they will cumulatively pay $204,900. If Bill’s premium increases at 3% per year through age 80, he will cumulatively pay $105,084. If Sue’s premium increases at 3% per year, she will cumulatively pay $193,735. That would be $298,820 on a combined basis. If Bill’s premium increases at 5% per year through age 80, he will cumulatively pay $137,561. If Sue’s premium increases at 5% per year, she will cumulatively pay $253,610. That would be $391,171 on a combined basis. If they die without needing care, the insurance company pays nothing – just like a major medical health insurance policy. See the chart below.
Nationwide CareMatters II Hybrid Life and Long Term Care Insurance Policy. This is a cash indemnity policy with guaranteed premiums. Bill will pay $4,839 per year and Sue will pay $6,374, for a combined premium of $11,213. They will each have 6 years of care with a monthly benefit of $10,469 per person and total benefit of $812,606 per person at age 80.
Their premiums are guaranteed over their lifetime. If they need care at age 80, they will cumulatively pay $280,330. If Bill dies at age 120 without needing care, the insurance company pays $217,749. If Sue dies at age 120 without needing care, the insurance company pays $286,845. That would be $504,594 on a combined basis. See the chart below.
Click to Enlarge
Conclusions. Traditional LTC insurance policies offer the opportunity to pay lower premiums compared to Hybrid Life and LTC insurance policies. If the Traditional LTC policy premiums increase over time the Hybrid Life and LTC policy premiums may ultimately be less expensive. If having a payment from the insurance company if you do not need care is important, the Hybrid policy offers this valuable feature. Since premiums vary greatly based on 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.
