Two for one: some people won't buy long-term-care insurance because they may never need it. For them, a life policy that accelerates the death benefit for LTC payments may be an alternative.Long-term-care insurance agent and consultant Wilma Anderson Anderson, river, Canada Anderson, river, c.465 mi (750 km) long, rising in several lakes in N central Northwest Territories, Canada. It meanders north and west before receiving the Carnwath River and flowing north to Liverpool Bay, an arm of the Arctic was working recently with a business-owner client. Both the client and his wife were 45 years old, and they were reluctant to spend thousands of dollars a year in LTC LTC abbr. lieutenant colonel premiums for a benefit they might never use. But Anderson noticed they needed more life insurance, and they agreed to buy life policies that also offered LTC coverage through early access to the death benefit. "It was a great way to offer what they needed," said Anderson, who is based in Littleton Littleton, city (1990 pop. 33,685), seat of Arapahoe co., N central Colo.; platted 1812, inc. 1890. It is a suburb south of Denver in an irrigated farm area. , Colo. Under normal circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or , the couple would likely have gone without the LTC protection. But following the LTC industry's big drop in sales last year, some agents are looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. alternatives to selling stand-alone (jargon) stand-alone - Capable of operating without other programs, libraries, computers, hardware, networks, etc. Exactly what is absent is presumed to be obvious from context. "We only run Windows on stand-alone PCs because it's too dangerous to run it on networked ones." LTC insurance, and insurers are said to be more interested in piggybacking Gaining access to a restricted communications channel by using the session another user already established. Piggybacking can be defeated by logging out before leaving a workstation or terminal or by initiating a protected mode, such as via a screensaver, that requires re-authentication the coverage onto life policies. In Anderson's opinion, companies that do are positioning themselves for a tremendous opportunity in the aging baby boomer baby boomer also ba·by-boom·er n. A member of a baby-boom generation. Noun 1. baby boomer - a member of the baby boom generation in the 1950s; "they expanded the schools for a generation of baby boomers" boomer market. These combination product designs have existed for many years, but there are now more of them because companies have been looking for ways to boost their life sales, Anderson said. "The real attractiveness is that if insureds don't use the LTC coverage, they still have the death benefit," she said of the combination products. Evolving Design Spurring the interest in combination products have been both a desire to create something new and to deal with the LTC marketing problem in an efficient way, said Tim Pfeifer, an actuary actuary One who calculates insurance risks and premiums. Actuaries compute the probability of the occurrence of such events as birth, marriage, illness, accidents, and death. and principal at Milliman Inc. "Stand-alone LTC can be a complex product, and presenting a simple message may be difficult," he said. "Combination products pay off at death and upon confinement con·fine·ment n. 1. The act of restricting or the state of being restricted in movement. 2. Lying-in. confinement . The coverages are complementary, and the pricing is efficient on both sides." Insurers usually use single-premium cash-value life as the primary product and attach a LTC rider. Golden Rule Insurance Co. and Lincoln Lincoln, city and district, England Lincoln, city (1991 pop. 79,980) and district, Lincolnshire, E England, in the Parts of Kesteven, on the Witham River. National Corp., through its First Penn-Pacific subsidiary, were early entries in the combination line of products. "People have been predicting for some time these products would take off because the companies writing them have done fairly well," said Pfeifer. "Now we are seeing a significant amount of activity in the pipeline." Pfeifer added that he would have expected such development activity even if stand-alone LTC sales were strong because combination products are consistent with companies' philosophies and market strategies. "As competing companies look around the corner and see what's happening, such as the success of Lincoln National's MoneyGuard, this is the direction in which the market will go. And there is evidence LTC writers need an alternative delivery chassisl," he said. Most of the products combine universal life with LTC, said Pfeifer. Some offer disability or critical illness as the secondary coverage. Disability features also have been tacked onto term life. Other products use fixed or variable annuities Variable annuities Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. as the chassis Pronounced "chah-see," it is a physical structure that holds everything or that everything is attached to. A computer's cabinet is often called the chassis. . Some companies are looking into combining all of their life coverages into a single product. Combination products offer advantages to both writers and buyers. Many writers of stand-alone LTC, for example, expected that policy lapses would have been greater and got hurt when they priced too low. But Pfeifer said strong persistency does not hurt the profitability of most life products. Buyers, on the other hand, have been hurt by the writers' need to raise premiums. But with combination products, they do not face that prospect since most are single-premium or annual premiums payable for a limited number of years. Affordability likewise works both ways. Writers benefit because insureds are not going to collect both a LTC benefit and a death benefit beyond the face amount unless the company charges separately for the extra amount. Insureds get the benefit of both kinds of coverage, but at a lower price than paying for separate policies. And because of cash values, buyers even have access to some or all of the money they've invested in the policies in the case of emergency or if they decide they no longer want them. A Better Use of Assets? Of course, compared with the annual premium needed to buy lots of protection in a stand-alone LTC policy, the amount of money needed to make a meaningful single-premium combination-product purchase can be considerable. At John Hancock Life Insurance Co., for example, single-premium or limited-pay purchases typically run from $75,000 to $100,000. That is why buyers are usually 60 to 75 years old and are repositioning repositioning Laparoscopic surgery The changing of a Pt's position during a procedure to improve access or visualization of the operative field, which may be linked to complications, as it changes anatomic planes of operation. Cf Laparoscopic surgery. money from safe but low-yielding accounts such as bank certificates of deposit. "They tend to be wealthier than most people, and the formation of the life and LTC pools are the primary reasons for buying the combination policies," said Neal Kerins, assistant vice president, life product management. Depending on the insured's age and health, the death benefit might be more or less than double the premium. Some sales are to people in their 50s, Kerins said. They may buy primarily for the life insurance, but lock in the LTC coverage for the future, he said. John Hancock's primary rider is the LifeCare Benefit, which makes the death benefit on life policies available for LTC. An additional rider, LifeCare Benefit Max, reconstitutes LTC benefits once the base policy is depleted de·plete tr.v. de·plet·ed, de·plet·ing, de·pletes To decrease the fullness of; use up or empty out. [Latin d . It also offers a residual death benefit. Kerins said the primary rider adds 5% to 10% to the overall premium, while the additional rider adds 5% to 7%. In the 42 states that allow the product, about 15% to 20% of sales include the additional rider. Kerins said the company ranked first last year in sales of UL with no-lapse guarantees and second for UL sales overall. John Hancock is in the process of making the riders available on all of its single-life products. Its first combination product, in 2000, was on a variable life chassis. The company first offered a universal life chassis in 2002. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Kerins, John Hancock has seen over the past 18 months a rise in interest in its combination products. "We've had great success with the rider initially with our career force, which is accustomed to and comfortable with LTC insurance. But since the merger with Manulife, which supports a higher-end life producer, we've seen increasing success there as well." Four of every five of Hancock's combination-product sales use universal life as the chassis, and they are almost exclusively to older buyers, said Kerins. The other 20% of sales use variable life, and they are to younger buyers. As to whether the LTC coverage is better in stand-None products, Kerins said claims processing is similar and definitions of need are the same, but the stand-alone policies have many more options and can better accommodate custom coverage. The rider, for example, comes with a flat 100-day elimination period Elimination Period The length of time between when an injury or illness begins and receiving benefit payments from an insurer. Also known as the "waiting" or "qualifying" period, policyholders must in the interim pay for these services and can be thought of as a deductible. . If the client does not need more life insurance, Hancock always recommends a stand-alone policy because it will be less expensive, said Kerins. Pfeifer said that industrywide in·dus·try·wide adv. & adj. Throughout an entire industry: sales that have decreased industrywide; industrywide cooperation. , a high percentage of sales are to people 60 and older, but insurers hope that benefits in combination products will enable them to "drag down" the average age of buyers of LTC coverages. A life chassis allows younger buyers to build up tax-deferred cash value they can access through policy loans or withdrawals. Old Product, Still Viable Golden Rule Insurance Co., a member of the UnitedHealth Group UnitedHealth Group Incorporated NYSE: UNH is a managed health care company. It is the parent of United Healthcare, one of the largest health insurers in the U.S. It was created in 1977, as UnitedHealthCare Corporation (it renamed itself in 1998), but traces its origin to a , in 1988 began offering a whole life/LTC combination product, Asset-Care, and now also offers an annuity/LTC policy. Bruce Bruce, Scottish royal family descended from an 11th-century Norman duke, Robert de Brus. He aided William I in his conquest of England (1066) and was given lands in England. Moon, assistant vice president of Golden Rule Financial Services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. , said the company chose whole life as the chassis because it commonly sells whole life to people 65 and older, the death benefit can grow, and because it offers a guaranteed floor. Annuity-Care, which uses a single-premium fixed annuity Fixed Annuity An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. as the chassis, retroactively ret·ro·ac·tive adj. Influencing or applying to a period prior to enactment: a retroactive pay increase. [French rétroactif, from Latin pays a higher interest rate for LTC benefits than for withdrawals or annuitization Annuitization The process of converting an annuity investment into a series of periodic income payments. Annuities may be annuitized regularly, over a long or short time period, or in some cases, in one single payment. . Of those buying combination products at Golden Rule, about 70% choose the life product. They think about estate planning Estate Planning The overall planning of a person's wealth, including the preparation of a will and the planning of taxes after the individual's death. Notes: Contrary to popular belief, estate planning involves much more than preparing a will, and it is not only for the and wealth transfer, and they are attracted by the idea of doubling or even tripling money they have "sitting in a CD," said Moon. Annuity annuity: see insurance. annuity Payment made at a fixed interval. A common example is the payment received by retirees from their pension plan. There are two main classes of annuities: annuities certain and contingent annuities. buyers have enough life insurance and are more concerned about their LTC exposure, he said. They are reluctant to pay premiums for stand-alone LTC products, but see the annuity/LTC combo as "something tangible," he said. Both products offer an optional LTC rider that guarantees benefits for life. "Premiums are very competitive because the rider only kicks in during the 37th month of care," when benefits of the combination products end, he said. About 60% to 70% of Annuity-Care buyers choose the rider. Sales of the products are up over comparable periods last year, Moon said. UnumProvident, the largest disability writer in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , uses level-premium disability as the chassis in its Income Protection product. Offered primarily to white-collar professionals and executives, it has a provision that allows for the exchange of disability income coverage during ages 60 to 70 to an individual LTC policy. This conversion option raises the disability price by about 1%, and 99% of product buyers take the provision, said Marilyn Finley, director of disability product development. If owners exercise the option, they terminate the disability policy and buy a LTC policy at prevailing rates but without new underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. . The contract they buy pays up to $3,000 a month ($1,500 a month for home care) with a 90-day elimination period and either a three- or six-year benefit period. Since inflation can erode Erode (ĕrōd`), city (1991 urban agglomeration pop. 361,755), Tamil Nadu state, S India, on the Kaveri River. The city is located in a cotton-growing region, and its industries include cotton ginning and the manufacture of transport equipment. the value of the LTC coverage, the company offers Income Protection buyers a rider providing an additional $5,000 a month. New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of Life Insurance Co.'s Asset Preserver, introduced in 1999, uses a single-premium universal life policy as the chassis. It has an average issue age of 65, and 64% of insureds are female. Mel Feinberg, senior vice president, individual life, said market demographics The attributes of people in a particular geographic area. Used for marketing purposes, population, ethnic origins, religion, spoken language, income and age range are examples of demographic data. are very favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. for combination life/LTC products and that the products allow life agents to learn LTC features, marketing concepts, regulatory issues and underwriting considerations. This education and training will make them more comfortable with selling stand-alone LTC products, he said. The incremental cost Incremental Cost The encompassing change that a company experiences within its balance sheet due to one additional unit of production. Notes: Incremental cost is the overall change that a company experiences by producing one additional unit of good. for an accelerated death benefit for ETC ETC - ExTendible Compiler. Fortran-like, macro extendible. "ETC - An Extendible Macro-Based Compiler", B.N. Dickman, Proc SJCC 38 (1971). should be less expensive for buyers than a separate LTC benefit, but the total benefits could be much less, he added. When paying LTC benefits by accelerating the death benefit, it's easier for the insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. to adjust the policy values from a universal-life chassis, Feinberg said. "We charge for the LTC benefit as a multiple of the cost of insurance," he said. "With a UL design, that is a reasonable approach--easy to understand, price tot and illustrate." Nationwide Life Insurance Co. prefers to offer LTC coverage through a rider on UL and VUL VUL Variable Universal Life VUL Vulnerability (unit) VUL Vulgar products. It has avoided the stand-alone LTC market. A combination product it had offered with a variable annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. as the chassis did not catch on, said Peter Golato, senior vice president of individual protection. Golato said buyers of the new LTC rider can choose what percentage of the death benefit will provide LTC benefits. Sales are "fairly robust," he said. Writers are now moving into an innovation phase that may include a cost-of-living adjustment cost-of-living adjustment n. Abbr. COLA An adjustment made in wages that corresponds with a change in the cost of living. on the benefit and coverage of spouses on one policy, he said. They are also looking at critical-illness and disability benefits. Genworth Financial Genworth Financial is an international financial services organization that offers a portfolio of primarily consumer-focused products through its various companies, including annuities, combination products, investment services, life insurance, long term care insurance, medicare , the leader in stand-alone LTC with $160 million in new premium last year, is working diligently dil·i·gent adj. Marked by persevering, painstaking effort. See Synonyms at busy. [Middle English, from Old French, from Latin d to develop a UL/LTC combination product, said Shaker Shaker Member of the United Society of Believers in Christ's Second Appearing, a celibate millenarian sect. Derived from a branch of the radical English Quakers (see Society of Friends), the movement was brought to the U.S. Jannah, a product management leader. "It's not an insignificant product for our industry," he said. "Wc don't believe it will erode stand-alone sales because it's targeted at people with a lot of liquid assets Cash, or property immediately convertible to cash, such as Securities, notes, life insurance policies with cash surrender values, U.S. savings bonds, or an account receivable. , and the marketing equation is also quite different."
How a Combination Product Might Work
The following illustrates how a Nationwide Financial individual
life policy coupled with the long-term-care rider might work and
what the effects would be on the cash values and the death benefit
over the years if long-term-care benefits are needed.
Assumptions
Client: Male, age 55, non-tobacco preferred
Specified Amount: $400,000
LTC Specified Amount: $250,000
Death Benefit Options: Option 1
Scheduled Premium: $12,500 for 10 years
Hypothetical Rate of Return: 8% Gross; 7.21% Net
Policy Attained Premius Contract Surrender
Year Age Paid Value Value
1 56 $12,500 $9,496 $4,245
2 57 12,500 19,651 14,400
3 58 12,500 30,475 25,749
4 59 12,500 42,032 37,831
5 60 12,500 54,381 50,704
6 61 12,500 67,655 64,505
7 62 12,500 81,924 79,299
8 63 12,500 97,264 95,163
9 64 12,500 113,743 112,168
10 65 12,500 131,195 131,195
11 66 0 137,454 77,454
12 67 0 144,143 241,413
13 68 0 150,954 0 (b)
14 69 0 157,950 0
15 70 0 165,127 0
20 75 0 209,659 0
25 80 0 267,027 17,027
30 85 0 346,774 96,774
35 90 0 473,364 223,364
40 95 0 651,647 401,647
45 100 0 $905,700 (c) $655,700 (c)
Policy Attained Death LTC Rider
Year Age Benefit Benefit
1 56 $400,000 $0
2 57 400,000 0
3 58 400,000 0
4 59 400,000 0
5 60 400,000 0
6 61 400,000 0
7 62 400,000 0
8 63 400,000 0
9 64 400,000 0
10 65 400,000 0
11 66 340,000 (a) 60,000
12 67 280,000 60,000
13 68 220,000 60,000
14 69 160,000 60,000
15 70 150,000 10,000
20 75 150,000 0
25 80 150,000 0
30 85 150,000 0
35 90 247,032 0
40 95 408164 0
45 100 $664,757 (c)
(a) The death benefit is still available while long-term-care
benefits are being received.
(b) The policy is guaranteed not to lapse while long-term-care
benefits are being received.
(c) There may be cash value and death benefit available even
after receiving long-term-care benefits.
Source: Nationwide Financial
Impact of Inflation
Inflation can badly erode the
purchasing power of long-term-care
benefits commonly found in
combination products.
Price of Room in
Nursing Home Per Day
With 5.78% Inflation Rate:
1999 $123
2005 $172
2010 $228
2015 $302
2020 $400
2025 $530
2030 $702
2035 $930
2040 $1,232
Note: table made from bar graph.
Source: Centers for Medicare and Medicaid
Services, 2002
A Sampling of Combination Products on Today's Market
Year
Company Product Name Introduced Coverages
Golden Rule Asset-Care 1988 Life/LTC
Golden Rule Annuity-Care 1998 Annuity/LTC
Lincoln National MoneyGuard * mid 1980s Life/LTC
Protective Preserver SPVL 1999 Life/LTC
UnumProvident Income Protection 2000 Disability/LTC
New York Life Asset Preserver 1999 Life/LTC
Nationwide LTC rider 2000 Life/LTC
John Hancock LifeCare rider 2000 Life/LTC
Genworth Under development Life/LTC
Chasis
Company Product Benefits Source
Golden Rule Whole life Accelerated death benefit;
optional lifetime rider
Golden Rule Fixed annuity Higher LTC interest rate
Lincoln National Universal life Accelerated death benefit
Protective Variable Life Accelerated death benefit
UnumProvident Disability income Policy exchange
New York Life Universal life Accelerated death benefit
Nationwide UL and VUL Accelerated death benefit
John Hancock UL, VL and VUL Accelerated death benefit
Genworth Universal life Accelerated death benefit
Tax State
Company Treatment Underwriting Approvals
Golden Rule Qualified Mortality, morbidity 48
Golden Rule Nonqualified Morbidity 45
Lincoln National Qualified Mortality, morbidity 48
Protective Tax free Mortality 41
UnumProvident Nonqualified Morbidity 47
New York Life Qualified Mortality, morbidity 49
Nationwide Qualified Mortality, morbidity 42
John Hancock Qualified Mortality, morbidity 41
Genworth Qualified Mortality, morbidity N/A
* Offers several versions of product
Source: Best's Review survey
Key Points * Products combining life and long-term-care insurance may help insurers sell more of both. * Writers can limit their exposure to the death benefit, even if insureds collect both kinds of benefits. * Combination products can help producers learn more about selling stand-alone LTC insurance. * The products can help writers reach the younger individual market with LTC coverage. Look for Inflation Protection in Combination Products Americans had better get serious about buying longterm-care insurance that protects them against the effects of inflation, said Phyllis Shelton, president of LTC Consultants, a Nashville, Tenn.-based company that trains agents and provides LTC education to employers and employees. Unfortunately, inflation protection is one area in which combination life/LTC products have fallen short, but Shelton said recent designs "have gotten a whole lot better." With their single-premium designs, combination products provide a fixed pool of benefits, and they require a significant deposit to obtain adequate coverage. A 60-year-old couple buying a survivorship survivorship n. the right to receive full title or ownership due to having survived another person. Survivorship is particularly applied to persons owning real property or other assets, such as bank accounts or stocks, in "joint tenancy. life/LTC policy, for example, might need to deposit $100,000 for $5,000 of monthly LTC benefits for three or four years. Buyers need to project the cost of LTC in their area for when they reach 80 years of age at a LTC inflation rate of about 5.8%, Shelton said. Then they should have an agent calculate how large their single premium needs to be. Many combination products now offer compound inflation protection through a rider as well as extended-benefits coverage. Shelton said she has often wondered whether buyers lacking inflation protection will be disappointed in the size of their benefits when they need them. Some people who bought standalone stand·a·lone adj. Self-contained and usually independently operating: a standalone computer terminal. policies without the protection years ago are now supplementing them with combination products, she said. Shelton and her company have been on an inflation-fighting crusade in recent years. During the 2002 enrollment period for the Federal LTC Insurance Program, she and her team of 16 conducted 2,020 meetings over four and one-half months in 43 states and 210 cities. Her company was in front of some 88,000 people. The result was that 269,000 federal workers applied for LTC coverage, 202,000 were accepted and 70% took inflation protection. "This inflation coverage is a make-or-break issue with LTCI LTCI Long Term Care Insurance LTCI Line Trunk Controller ISDN ," she said. "By the time the claims hit, it could be too late to do anything about it, so now is the time to raise the bar on selling inflation coverage, lf we don't do this right, and if we allow the baby boomers See generation X. to fall on any kind of public assistance for LTC, we will have unprecedented taxation in our country." Shelton said she doubts combination products will grow by leaps and bounds, partly because of the big outlay a buyer must make for significant LTC coverage. She said combination products have hovered in recent years at about 3% of LTC policies sold. Reluctance among life agents to learn about LTC products is mostly responsible for the stagnant stagnant /stag·nant/ (stag´nant) 1. motionless; not flowing or moving. 2. inactive; not developing or progressing. combination-product sales, Shelton said. "It's really a training issue. There's a market for the products, but life agents are nervous about LTC. What's interesting to me is that the media is talking about combination products." Learn More John Hancock Life Insurance Co. A.M. Best Company # 06681 Distribution: Career agents, independent agents, other third-party producers Genworth Financial Group A.M. Best Company # 69555 Distribution: LTC specialists, financial advisers UnumProvident Group A.M. Best Company # 69743 Distribution: Independent brokers and agents, benefit consultants, direct sales, marketing agreements New York Life Insurance Co. A.M. Best Company # 06820 Distribution: Career agents, independent agents and brokers, alternative channels Golden Rule Insurance Co. A.M. Best Company # 06263 Distribution: Numerous sources, including brokers, general agents, direct sales and Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the First Penn-Pacific Life Insurance Co. A.M. Best Company # 06904 Distribution: Independent agents, brokers, banks and wire-houses Nationwide Life Group A.M. Best Company # 70350 Distribution: Independent broker/dealers, financial firms, financial planners Financial Planner A qualified investment professional who assists individuals and corporations meet their long-term financial objectives by analyzing the client's status and setting a program to achieve these goals. For ratings and other financial strength information about these companies, visit www.ambest.com. |
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