Why A Standalone Long-Term Care Insurance Policy?

Standalone LTCI policyYou have all seen a great deal of conversation about hybrid or linked life or annuity/long term care policies.  There are an increasing number of options available.  They appear to offer two solutions for the price of one.  But in most cases, their compromises water down either one or both of the client’s objectives.  Having a standalone long term care insurance policy can completely eliminate this situation.

If your client purchased life insurance, they of course did so with the intent that a certain death benefit be paid to their beneficiary or beneficiaries.  Using the long term care rider will lower or in some cases completely use up their death benefit, so that the objective of a death benefit to their heirs would be partially or completely unrealized.

There are basically two types of plans.  The hybrid product normally has a set death benefit, but a continuation of benefits rider can be bought which increases the normally strong  long term care benefit over time.  If there is a claim for long term care services, the benefits are first pulled out of the death benefit and then out of the continuation of benefits rider.  This structure emphasizes the long term care benefit over the death benefit, and the long term care benefit can be a robust one.

The linked product normally has either a robust or increasing death benefit, and long term care benefits are an acceleration of the death benefit.  This structure emphasizes the death benefit over the long term care benefit.  If the death benefit is substantial, say $ 500,000 or more, the accelerated long term care benefit can also be a robust one.  However, the long term care benefit is normally static, so if the death benefit does not become a substantial one, the long term care benefit could well fail to cover the cost of care in a long scenario.  Here, the death benefit can essentially disappear as well.

In the case of an annuity/long term care policy, the long term care benefit is normally two or three times the value of the annuity, and like a life/linked product, the long term care benefit can be a substantial one if the value of the annuity is large.  However, as in the case of the life products, long term care benefits are first deducted from the value of the annuity.  If the original purpose of the annuity was either to provide a lifelong stream of income or a death benefit, a substantial long term care scenario can eliminate either original purpose.

Of course, one cannot foresee what combination of benefits will be utilized in the future.  I am convinced that many uninformed agents will sell small combo products in the future and claim that their client’s long term care needs will be fully met, when they will only be met in part.  The average life insurance policy sold today only has a death benefit of $ 130,000, whereas the average annuity policy has an even lower value.  I urge you to avoid future lawsuits by telling your prospects exactly what they are buying when they buy these combo products.  Better to lose a sale that to get sued in a case where the odds would be against you.

The traditional long term care policy has the one big drawback of the use it or lose it feature, and in this era of frequent rate increases, this creates uncertainty as to the true value of these policies.  But I believe that rates are now so high that the need for future rate increases has been minimized.  The traditional long term care policy still represents a terrific value for the client…as the carriers well know because of all the claims they are paying.  LTCI should be sold about 90 % of the time in my opinion.


Louis H. Brownstone is the Chairman of Northstar Network Insurance Agency, Inc. and is a certified Long Term Care specialist. Louis is recognized as an industry leader, with articles appearing frequently in California Broker Magazine and other industry publications and events.