The long-term-care insurance industry is bleeding. Can hybrid policies save it?

Traditional LTC insurance policies are in trouble—the industry has had to spike premiums as it struggles to make good on guaranteed benefits to its customers—at a time when interest rates are near zero and insurers can’t depend on higher rates to support benefits. For these reasons, the issuance of new long-term-care policies fell from 750,000 policies per year in 2002 to just 55,000 in 2019.

It’s unclear if hybrid policies will change all this, but they have definitely taken over the market. Hybrid long-term-care policies bundle long-term-care insurance with variable insurance or annuities.

“Last year at Raymond James, we probably did $1.5 million to $2 million in traditional policies and $250 million in hybrid,” says Renee Larson, vice president of life and long-term-care sales at Raymond James’s Producers Choice Network division. “In the past three months, we’ve seen 35% to 40% of LTC policies sales come from hybrid products sold by advisors who either haven’t written a policy before or haven’t written one in the last five years. So the market is just increasing exponentially.”

According to the American Association for Long-Term Care Insurance, hybrid LTC policies now account for as much as 30% of the overall long-term-care market.“There are all kinds of statistics out there that say that clients want to have a long-term-care conversation,” Larson says.  “I think these products make it a little bit easier. Hybrid products have guarantees. Clients know their premiums aren’t going to increase and they can plan for that.”

Advisors know that a client’s long-term-care expenses can derail a “comfortable” retirement for many families. But while an estimated 7.5 million people have some type of long-term-care coverage today, 42 million Americans between the ages of 55 and 64 (the prime age for buying a policy) do not, according to the American Association for Long-Term Care Insurance.

Adherents see hybrid policies as the answer to many of the drawbacks traditional long-term-care policies suffer from, including the recent need to hike the rates on them by as much as 50% in one year. Traditional policies are true “use it or lose it” insurance and require policyholders to enter a nursing home to use the benefit (they must provide receipts, which they’re reimbursed for). Insurance covering at-home LTC is available only through an additional rider.

In sharp contrast, hybrid policies lock in premiums for life and provide a death benefit. Policyholders have the flexibility to pause premiums and can use the LTC benefit for at-home care, assisted living or nursing home care via automatic payments. On some policies, receipts for reimbursements are no longer necessary.

“These are major distinctions between the traditional LTC market and hybrid market,” says Heather Deichler, senior vice president of Lincoln National’s MoneyGuard Product Management. “Our rates are non-cancelable. We can’t ask for rate increases.”

In mid-February, Lincoln National introduced its latest hybrid product, MoneyGuard Market Advantage. A variable universal life (VUL) insurance policy, it offers a long-term-care rider that helps cover qualified long-term-care expenses. The policy provides a guaranteed level of protection and offers the possibility of growth through 40 different investment options from leading portfolio managers and customizable or turnkey portfolios.

The product, says Deichler, “allows consumers to acquire guaranteed protection at an earlier age with the potential for increased benefits over their lifetime.”

First « 1 2 » Next