The more life insurance changes, the more it changes. Life insurance has transformed into a kind of Swiss army knife with functions designed to harness the power of living benefits for long-term care. That’s right, you don’t have to die to access a policy’s death benefit. Gone are the days when the darling of life insurance was LIRP (life insurance retirement plan). Today, even LIRP sales applications have had to acquiesce and bow down to make room for rider solutions to cover long-term care expenses. In these scenarios, Chronic Illness riders are typically subordinate having no up-front charges for the priority focus to remain on accumulation and distribution. (i.e., the tradeoff of no up-front charges to maintain the integrity of the accumulation emphasis – results in the likelihood of only a fraction of the death benefit being eligible to accelerate for chronic illness needs).
Extension of Benefits. What’s in a Name you ask? Everything.
Let’s start by identifying which insurers offer LTC Extension of Benefit solutions on a life insurance chassis: Lincoln (MoneyGuard), OneAmerica (Asset Care), Nationwide (CareMatters), Brighthouse (SmartCare), MassMutual (CareChoice), Securian (SecureCare), Thrivent (CareForward), New York Life (Asset Flex).
Now, if you ask an insurance professional what category they use to describe these products you will hear: Hybrid, Linked Benefit, Asset Based, or Combination products. Although I concede that these are not wrong, they are lacking. The problem is sometimes they are used interchangeably to describe LTC and Chronic Illness riders on life insurance, and quite frankly, that’s an insult to LTC Extension of Benefit products.
The point is Extension of Benefit products offer more robust LTC benefits. Specifically, they allow one to (1) accelerate the entire guaranteed death benefit amount; (2) plus accelerate a second pool of guaranteed monies after the death benefit has been exhausted (hence “extension of benefits”); (3) they have premiums which are guaranteed (no in-force rate actions to increase charges for existing policy holders); (4) they have monthly LTC benefit amounts which are guaranteed; and (5) most offer guaranteed return of premiums or cash values – up to 100% of the premiums paid. As a result, they are sometimes sold as repositioning lazy assets (savings account or CD) where your investment guarantees a return of premium should you surrender the policy and if you don’t surrender – then it affords a leveraged death benefit or leveraged LTC benefit.
If a picture is worth a thousand words, then let me paint this to illustrate the superiority of LTC Extension of Benefit products. Although each vessel will get you to the other side, the benefits/experience are entirely different.
Chronic Illness Rider, No, Up-front Charges Canoe
Chronic Illness Rider, Yes, Up-front Charges Boat
Long-Term Care Acceleration Rider Motorboat
LTC Extension of Benefit Products Yacht
If you are selling a:
Within the context of a once in a 100-year pandemic combined with the rising cost of health care, consumer demand for long-term care solutions will only continue to grow. Then when we add that 12+ states are considering state mandated long-term care, it increases the likelihood that new insurance company entrants will capitalize by offering solutions which meet states’ criteria. (In the case of Washington, Extension of Benefit products, LTC riders and Traditional Long-Term Care insurance met the eligibility criteria to exempt residents from the payroll tax. But Chronic Illness riders did not). BTW: if you don’t already have your Health license to sell qualified long-term care insurance, then what are you waiting for?
Unfortunately for insurers, they were plagued by historically low interest rates which impacts both the pricing and the guarantees they offer. In the 4Q2021 alone, four insurers implemented up to double digit rate increases on their Extension of Benefit products. However, with interest rates on the rise this year, we have actually seen some price reductions.
Shift towards Long-Term Care Benefit Growth Opportunities that are Not Guaranteed
Today insurers who offer LTC Extension of Benefit products have come up with creative solutions to grow long-term care benefit pools subject to non-guaranteed elements. For example:
The monthly LTC benefit amounts can be increased or the number of months for which the stated LTC benefit is paid out can be prolonged subject to non-guaranteed assumptions. Maybe one day we will even see wellness initiatives being utilized to increase either the benefit amount or duration.
Based on state filings of LTC Extension of Benefit products, we can predict:
For LTC Extension of Benefit products, when we consider the trend toward declining return of premiums, and the erosion of guaranteed elements, perhaps we should run and not walk to sell todays products.
With regard to Chronic Illness rider variations and LTC acceleration riders, life insurance will always be life insurance first with a suitable need for life insurance to justify the sale.
Insurance companies have done a fine job adapting their offering with the precision of a Swiss army knife to meet consumer needs. The question is, “Have you? Do you know which solutions are the best fit to meet your clients’ needs based on their priorities? Do you know which type of riders you are selling?”
The genetic marker distinguishing LTC Extension of Benefit products from LTC riders and Chronic Illness riders is their ability to extend long-term care benefits beyond the death benefit. So, what’s in a name? Everything. Because if we don’t know what we are selling, then how can our clients know what they are buying?”
 The onus is on you to know which type of Chronic Illness rider you are selling. What does the illustration say? What does the rider guide or rider F.A.Q. say? If you are unclear as to which type of rider you are selling, then on this website refer to the article, “Chronic Illness Riders, Don’t get Tangled Up in a Lawsuit.”
 Most LTC riders are filed in this manner, however there are a few companies that file LTC riders under IRS Code §101(g) paired with NAIC LTC Model Regulations. These products may be referred to as long-term care and have the same consumer protection requirements as do LTC Riders filed under IRS Code § 7702B.
Ramona Neal, CLU, ChFC, CLTC, REBC
This article is intended for Financial Professional Use Only. Living Benefit Review, LLC makes no warranties or representations as to its accuracy. This article should not be construed as rendering tax, insurance, investment, or legal advice. You acknowledge that any reliance on this material or any opinion, statement or information shall be at your sole risk. If you take any action based on the information in this article, you take full responsibility for the results of that action. You should independently verify its content. Nothing in this article constitutes an offer to sell or buy any insurance product or rider. Products and riders, including benefits, exclusions, limitations, terms, and definitions vary by insurance company and vary by state.