TLC for LTC
by Zaahirah Souri, LifeTrends Product Analyst
Long term care (LTC) or chronic illness (CI) riders on a life insurance policy can create great value for a client with multiple financial planning needs. These living benefits can supplement the primary death benefit protection of life insurance by extending optional coverage to the insured’s lifetime and providing them with the advantage to use the policy’s benefits when life’s unpredictable circumstances require a need for care. As life expectancies continue to increase, bringing these two objectives together through the addition of a rider is a common move in the life insurance market. While these riders can have many variables, we set out to look at one – the overall costs associated with this added protection that are paid for at issue.
Product Positioning
The most important outcome of the study showed that a product’s competitive positioning remains largely consistent when applying a LTC or CI rider. In other words, if the pricing was strong without the rider, the pricing will still be strong when comparing with other rider options (in protection-oriented NLG, CAUL, IUL and VUL markets). While the competitive landscape remains mostly static with the addition of LTC and CI riders, premiums do increase by varying amounts on a product by product basis. Simply put, products that initially had a pricing advantage were able to charge a higher percentage for their rider, while still maintaining their positioning.
Changes in Premiums
The second main takeaway is that average premium increases generally leaned near 10%-25%. Relatively speaking, this range can be used as a good initial measure when considering costs while larger premium increases should prompt a deeper look into the rider benefits. Other cost trends included females having a slightly larger premium increase than males due to a longer life expectancy, and shorter term pay structures saw less of a percentage increase than full payment periods. Long term care specific riders tend to have a wider range of premium increases relative to chronic illness riders, but, on average, neither type seems to be more expensive than the other.
Cost Related Features
As these riders become more popular, they are also expanding in their electable options. While carriers used to limit LTC and CI riders as either ‘on’ or ‘off’, we are now beginning to see them evolve to echo some of the features offered in traditional, stand-alone long term care and combination products. One emerging cost related option includes choosing how much of your death benefit can be accessed through the rider. For example, clients can choose 4% over 2% as their benefit amount up-front which allows for a faster acceleration of benefits, but, in return, is obviously more expensive (by about 3-4% on average). Additionally, Nationwide and Pacific Life have introduced the couple’s discount on their riders which has been a known risk class that previously only existed in stand-alone LTC and combination products. On average, Nationwide offers a 10-15% premium discount while Pacific Life offers a 2-3% premium discount for couples compared with their non-discounted standard rates.
Ultimately, each protection-oriented client should be made aware of the great opportunity presented by long term care and chronic illness riders. While it does come at an additional premium cost of roughly 10%-25%, the addition of LTC or CI riders to a product adds value to the benefits of life insurance but, generally, at little penalty for a product’s competitive positioning. Depending on a client’s financial priorities, a long term care or chronic illness rider can provide greater optionality of protection and more control over the use of benefits.