A Debate Between Traditional Long Term Care Insurance and Hybrid Products

Presented by Leonard Berthelsen

There seems to be quite a debate being waged between traditional LTC products and the hybrids of life and annuity products.  The positive of this is the attention long term care is receiving.

I read comments like “I’ll lose it if I don’t use it”.  Yes, there is statistical chance that a client would pass away and not use the product’s benefits with the traditional LTC products.  However, I don’t believe there actually is a large statistical chance especially with long life expectancy and the utilization of home and community care services in a traditional LTC product.  Also, these plans now allow the untrained friends and family care providers to be paid for these services from the policy by many of the carriers.  When all is considered, access to long term care services will probably increase.

Yes, asset based LTC products offer a” lock in” when purchased and there would be no future rate increases with that product.  For some consumers, this is desirable.  For many other potential clients, the single premium deposit or purchase is just not in the retirement plan.  Moving a large block of money to have dedicated to LTC coverage certainly is not for everyone.  In certain situations, does the client understand that the first money to get used in a hybrid annuity long term care claim is their own deposit?

Traditional LTC products and carriers have a much better understanding of claims, costs, and morbidity than they did five years ago and certainly better than 25 years ago.  Only time will tell if the carriers have it right.  When financial planners and advisors design plans for their clients using traditional LTC products, there are certainly options in those plans that reduce the risk of future rate adjustments.

I have even seen comments that there is a concern that when benefits are drawn from a LTC plan, those benefits would be taxed.  Since 1996 when tax qualified LTC plans became part of the LTC insurance landscape, these benefits have been paid tax free.  In the 1995 legislation that gave us tax-free LTC benefits, it also made all plans sold prior to 1996 grandfathered and treated as if they were tax qualified.  This issue has become somewhat of a lightning rod for justifying one design plan over the other.

I’m not an advocate for one over the other, they both have their place.  Advisors should recognize that clients have different needs, just as we have different products for those needs.  One is not at the expense of the other.  Both designs can co-exist and both plans can flourish.

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