The Best of Both Worlds: A Look at Combo Products

by Ami Amega, LifeTrends Product Analyst

More and more people are seeing the benefits of preparing for unforeseen illness due to the state of health care and its increasing costs. Though the concept of long-term care (LTC) is not a new one, we have seen a resurgence in its popularity integrated into life insurance. These once-expensive, standalone products that covered the cost of care in the event of a chronic illness or disability have found a new home in the pared down form of long-term care combination (LTC Combo) products. These products are built to combine the best parts of long-term care with the most important part of life insurance, the death benefit.

Long term care insurance is a type of coverage that pays when its policyholder needs help caring for themselves as a result of a critical illness, chronic medical condition, or disability, such as Alzheimer’s. Historically, LTC products were separate from traditional life insurance. They recently became unpopular among insurers because of pricing issues and among consumers because of their “use it or lose it” structure. Meaning, if the insured is never deemed to need help caring for themselves in their lifetime, then the standalone product would pay little to none for intended purpose. This made space for the rise of LTC riders, which we looked at in an earlier blogpost titled, TLC for LTC. As an add-on to regular life products, LTC riders provide benefits in the event of illness, but their options can be relatively limited. LTC Combo products address these issues by providing more use and flexibility. They are a great example of the possibilities of life insurance and its dynamic nature. LTC Combo products are built to combine long term care with traditional life insurance by giving access to death benefit in the form of LTC benefits.

Combo products offer flexibility through their many LTC options. They include:

• Benefit duration – Ranging from 2-7 years, but typically falling between 4 and 7 years
• Inflation Protection – Can be added at time of signing, typically between 3% or 5% (simple or compounding interest)
• Return of Premium –
  • 100% ROP – 100% return of premium option starting from the first policy year
  • Vested ROP – Returns an increasing percentage of premiums as the years go on, all the way up to 100% ROP after all premiums are paid
  • Basic ROP – Offers a lower amount of ROP in exchange for higher LTC benefits
• Pay Structure – Combo products have historically offered only single, five, or ten pay. Now, we are seeing products offer more flexibility, like Nationwide’s CareMatters II, which includes the option to make annual payments to age 100.

In addition to these options, many products come with other helpful features. One of the most important features is strong guarantees, which are offered through the life of the policy. Two-thirds of the products offer a couple’s discount that usually increases LTC benefits by 2% to 7%. About half of the products distribute LTC benefits on an indemnity basis, where policyholders receive a check for a set amount to use as needed. The other half distribute on a reimbursement basis, where insurers repay policyholders for approved expenses, which can allow for longer benefit durations. Pacific Life’s PremierCare Choice was the one product we saw that allows policyholders to choose between indemnity and reimbursement at the time of the claim.

We looked at seven products with a variety of scenarios, and this competitive landscape showed a few key players. Nationwide’s Care Matters II, and Lincoln Financial’s newest product, MoneyGuard III (basic ROP option) showed to have some of the highest benefits of at least 5%, while sometimes reaching as high as 30% better than average. Those products are also coupled with an abundance of options. Pacific Life PremierCare’s vested ROP has a strong offering though it does not provide any benefit durations under 5 years. Both New York Life’s Asset Flex and Securian Financial’s SecureCare UL is competitive for certain benefit years. In addition, Securian Financial boasts many options. For example, they are the only product of the bunch that offers all four inflation options. Mass Mutual’s CareChoice One is challenging the industry standard of guaranteed LTC combo products by also offering non-guaranteed values. One America has an interesting continuation of benefit option that kicks in after face amount is exhausted.

It seems that companies are working hard to come out with products that have unique characteristics that play to the needs of client and set them apart from the competition. Interested in seeing the numbers for yourself? LifeTrends compares them!

LTC Combo products are rapidly evolving. This year we’ve witnessed a huge increase in product releases and pricing updates, with more changes yet to come. The demand and production of combo products is growing, and insurers are striving to give consumers more options than ever. The future is bright, and we here at LifeTrends are excited to follow it every step of the way.