Laura Steckler, an advisor with Raymond James' Steckler Wealth Management Group in Coral Gables, Florida, had what she believed was an ideal solution for a client who wanted long-term care insurance: a combination life insurance and long-term care policy that she could pay over 10 years rather than in one lump sum, an option that was rarely heard of just five years ago.
The recently divorced client, 54, did not want to drain her retirement assets to pay for potential future long-term expenses and more importantly did not want to rely on her two children to care for her as she aged, Steckler said.
Steckler secured a $50,000 hybrid policy with Lincoln Financial that her client would be able to pay in 10 annual installments of $5,000. If she were to claim benefits for long-term care expenses at age 75, the policy would cover $2,350 a month for 84 months, with the benefit rising 3% annually.
"It may not cover 100% of all her care, but it makes a big dent," Steckler said.
Until recently, individuals would typically plunk down $100,000 or $200,000 to purchase a hybrid life insurance policy that provided long-term care benefits. With the rollout of smaller policies payable over 10 years, more people are now able to access the coverage, according to Steckler.
"They became more digestible," she said of the longer-pay hybrid policies.
NO PREMIUM INCREASES
Steckler is a fan of what she refers to as the new hybrid '10Ks' for other reasons. Clients are not subject to premium increases, unlike traditional stand-alone long-term care policies, which have posted significant increases over the last seven years. In Florida, for example, premiums climbed almost 21% on average from 2010 to 2016, according to the Florida Office of Insurance Regulation.
Another plus is that clients only pay premiums for a predetermined amount of time, unlike traditional long-term care insurance where clients pay premiums throughout their lifetime.
"You’re done in 10 years. Not only do you no longer have premium increases but you never have to pay another nickel in premium after those 10 years,” Steckler said.
Lincoln Financial began marketing its longer-pay hybrid policy options about five years ago, but they have been available to clients since the hybrid product launched in the late 1980s, said Mike Hamilton, vice president of MoneyGuard product management. Since the company began its marketing efforts, clients have shifted from the single pay option to longer pay options, with about half of buyers today choosing something other than single pay, he said.
Earlier this year, the company introduced even longer payment options for younger buyers, with the ability to stretch payments out as long as 25 years, Hamilton added.
Greater flexibility in payment options, however, is not what's driven the popularity of hybrid products, said Mac McCullough, an insurance manager for Cetera Investment Services in St. Cloud, Minnesota.
Life insurance policies that double as long-term care policies have taken off because they allow policyholders to claim a death benefit for their beneficiaries should they never need long-term care. They also return premiums to policyholders – in whole or in part – should they decide they no longer want coverage.
“It’s a wonderful thing for senior citizens,” says Mac McCullough, adding that seniors like to be able to retrieve their premium if they want it back. “They don’t want to give money away.”
The new hybrid policies are also more affordable than traditional long-term care insurance, say many experts. “A pure long-term care policy is astronomically expensive and not affordable to most middle Americans,” said Samantha Chow, a senior life and annuity analyst at Aite Group.
Benefits under a hybrid policy, however, are not nearly as robust. “It may not give me 100% of the same benefits as a pure long-term care policy but it gives me peace of mind," Chow said.