Hybrid Life Policies and Long-Term Care

Hybrid Life Policies and Long-Term Care

In the life insurance industry, policies aimed specifically at providing long-term care are in decline.

Clients find them too expensive and many companies have withdrawn from the market. To fill the void, life insurance policies containing long-term care riders have stepped-up in popularity.

Life policies that offer long-term care provisions – so-called life-LTC hybrid policies – are steadily gaining popularity among Americans. In 2017, more than a quarter-million of these policies were sold, a 5% annual increase. This might not seem startling until we compare it with the results for standalone LTC policies – only 70,000 were sold, less than one-tenth the amount opened in 2000.

The standalone policy market isn’t dead and major insurers are offering new products to clients. Indeed, hybrid policies are daunting to some customers, as they can seem confusing. There are two distinct product offerings, each governed by different legal guidelines. Insurance providers need to clarify the distinctions for wary clients if they hope to gain their business.

The most popular form of hybrid benefit is an accelerated death-benefit rider governed by the provisions of 26 U.S.C. § 101(g). The rider is usually – but not in every case – attached to the policy free of charge. It cannot explicitly be sold as long-term care coverage. Personal, market and policy-specific factors determine the amount that can be paid out before the client’s demise, but the death benefit determines the ultimate limit. The payout comes in the form of an indemnity, rather than reimbursement of costs.

The other type of product is regulated by 26 U.S.C. § 7702(b). These can be sold specifically as long-term care products and offer reimbursement clauses, in addition to indemnity payments. They are complex in the sense that they can be fine-tuned to the client’s particular needs, dependent on gender, health condition and many other factors.

For more information, please read:
Hybrid Life Insurance Policies Increasingly Popular As Long-Term Care Funding Strategy | Forbes

 

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