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Some CPR for LTC.

THE LIFE INSURANCE industry met passage of the Pension Protection Act of 2006 with praise, in part because the new law provided favorable tax advantages to so-called linked benefit products: insurance and annuities that carry a long-term care rider. The act, analysts believed, would give a positive jolt to historically dismal LTC sales.

Recent industry statistics validate (so far) the positive forecasts, notably with respect to linked life-LTC solutions. According to market research firm LIMRA, Windsor, Conn., new premium for combo products (UL-LTCI, VUL-LTCI and whole life-LTCI) reached $800 million and more than 26,000 policies sold. Up 62% over 2009, the gain accounted for 6% of the combo market based on total new premium. The rise additionally yielded 45% of growth of all combo products (which include solutions that offer an accelerated death benefit).

Universal life combo products continue to be the biggest segment of this market, not just in premium but also in new policies and insurance sold. New premium rose 58% from 2009, representing 80% of the market, reports LIMRA. And policy count jumped 60% from 2009 sales results.

But the sweet spot for linked combo products is whole life. New premium of whole life-LTC linked products grew 89% in 2010--outpacing UL-LTCI by 31%. And policy count growth was up 106%, exceeding by 18% VUL-LTCI policy growth.

More insurance manufacturers are taking notice of the numbers, including Lincoln Financial Group, John Hancock Financial Services, Genworth Financial Group and Sun Life Financial.

A new entrant to the market, Sun Life, Wellesley Hills, Mass., debuted on June 27 Sun Care Whole Life, a single-premium whole product with a linked LTC benefit that policy owners can apply to a range of long care needs, including in-home care, assisted living and nursing home facilities.

Bob Kline, vice president of strategic planning at the company, says the product can provide a long-term care benefit equivalent to between three and seven times the value of the single premium. The value will vary with such factors as riders selected, age, gender and smoking status.

How does the product work? An insured who requires a long-term care benefit will first exercise the death benefit acceleration feature of the whole life policy over (typically) the first two years of care. If additional benefits are needed, the product's long-term care rider kicks in, providing up to an additional six years of care.

Alternatively, if the insured passes away without exercising the long-term care benefit, a death goes to beneficiaries, income tax-free. Should the policy owner buy an optional return-of-premium rider, the original premium would also be recouped.

That ability to recover funds should appeal to client prospects who, until now, have avoided purchasing stand-alone LTC insurance because of its "use-it-or-lose it" feature. The often substantial financial investment and cumbersome underwriting process that LTCI sales entail have discouraged many from buying the product. That's been especially true of LTC carriers' target demographic: high net worth boomers between ages 50 and 75.

Kline believes the market is now primed for "dramatic" growth. He bases his assessment in part on the burgeoning number of boomers who must plan for long-term care in coming years. About 10,000 of the nation's 78 boomers are turning age 65 each year--a trend that is expected to continue for close to another 20 years.

He points as well to linked products' greater appeal compared to traditional stand-alone LTC solutions. Apart from the ability to recoup a death benefit owing to the permanent life insurance chassis, the linked products generally also boast a simplified (read: faster) underwriting process.

But that doesn't mean giving underwriting short shrift. To be eligible for Sun Life's linked benefit offering, applicants have first have to fulfill detailed medical background checks. The due diligence, notes Kline, allows the carrier to offer (depending on the client's health and other factors) a more generous LTC benefit than is available on linked annuity-LTC products, for which underwriting requirements are generally less comprehensive.

All well and good. But the market for linked life-LTC products offered by SunLife and competitors will, for the foreseeable future, remain limited in large measure to an affluent niche: clients with investable assets north of $500,000. Kline acknowledges as much, noting also that prospects for the new Sun Life product generally also are rolling over money from an IRA or qualified plan.

Still, the new combo products promise to breathe new life into an LTC market that, in past years, failed to meet to industry expectations. For insurance and financial service professionals who are looking to expand their product portfolios, this should come as good news indeed.
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Author:Hersch, Warren S.
Publication:National Underwriter Life & Health
Date:Jul 11, 2011
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