What's Next After Long-Term Care Insurance? - In the last five years, 10 companies that were once in the top 20 market share in the long-term care insurance industry have bailed, according to Limra, an industry research group. The most recent to leave include Prudential Financial and Metlife.
In the last five years, 10 companies
that were once in the top 20 market share in the long-term care insurance
industry have bailed, according to Limra, an industry research group. The
most recent to leave include Prudential Financial and Metlife. Most
insurers have left the industry due to the changes in assumptions that were
initially used to price the products. The assumptions include, but are
not limited to, mortality, persistency, interest rates, and morbidity.
The assumptions have not transpired in the manner the insurers expected,
resulting in either a termination of sales or major premium increases for
existing policyholders.
The industry realized that the needs
of consumers and insurers were not being met with long-term care insurance
policies alone. In response to this demand, insurers have designed what
can be best described as hybrid or linked policies. These policies
combine the benefits of an annuity or life insurance agreement with a
traditional long-term care contract. With hybrid policies the consumer
has the guarantee of long-term care benefits or, if no care is needed, the
promise of insurance benefits to themselves and their beneficiaries.
Hybrid policies work in several
ways. One type of policy links long-term care to a life insurance
policy. The insured deposits a set premium into a policy. Depending
on the age, gender, and health of the insured, an immediate pool of money is created
for long-term care. At the same time, an immediate death benefit is
created in life insurance.
Another example of these combination
policies links long-term care benefits to a single premium tax-deferred
annuity. This product begins as an annuity with either a lump sum deposit
or structured deposits made over time. If no long-term care is needed the
annuity gains interest and functions like any other fixed annuity. But if
the owner/annuitant needs care in a nursing home or elsewhere, a formula will
be used to determine the amount of the monthly benefit available to the
owner/annuitant.
The newest addition to the hybrid
marketplace is the long-term care annuity. This product also functions
exactly like a fixed annuity but has a long-term care multiplier built into the
policy; there is no return of premium rider attached to this medically
underwritten annuity policy. Instead, a portion of the internal return in
the contract is used to pay for the long-term care benefit.
Long-term
care coverage is calculated based on the amount of coverage selected when the
policy is purchased. The insurance company offers a payout of 200% or
300% of the aggregate policy value over two or three years after the annuity
account value is depleted. If long-term care is never needed the annuity
value would then be paid out in a lump sum to any named beneficiary.
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