Hybrid Products Can Increase Long-Term Care Insurance Coverage Rates
More consumers would consider purchasing long-term care (LTC) insurance if it were offered as part of a “hybrid” policy that combines LTC coverage with another insurance product, such as annuities, life insurance, or disability insurance, a study recently published by the AARP Public Policy Institute concluded.
The report by Marc P. Freiman of RTI International looked at several types of hybrid insurance products that might increase the appeal of LTC insurance. As an example of these products, the study cited the accelerated death benefit, a hybrid of life insurance with LTC insurance which may be offered as an option or rider to a life insurance policy. This benefit allows the policy owner to “accelerate” all or part of the death benefit payout if he or she becomes permanently disabled and requires long-term care services. It is also possible to combine disability and LTC coverage in a single product that offers the option to exchange the disability policy for an LTC policy without undergoing an underwriting review.
Because so few people currently have long-term care insurance, Freiman speculated that introducing hybrid products could produce a significant increase in the number of people who have some form of LTC coverage, especially if these products were accompanied by government incentives and promoted through marketing and education campaigns.
“Since there is a range of insurance products that may be appropriate for any individual, educating oneself about these products and applying for the insurance in a single combined informational and application process may be more efficient,” Freiman said.
Freiman also observed that hybrid products can be useful in overcoming the negative perceptions of long-term care insurance, particularly the prospect of paying premiums to insure against events that may never occur or will likely only occur far in the future.
“Hybrids with whole life insurance or annuities allow for some benefit or residual cash value even if the policyholder never needs long-term care, and may help motivate the payment of premiums for possibly decades before a policyholder does need long-term services and supports,” the author asserted.
However, Freiman also warned that hybrids alone are unlikely to solve the basic societal problem of how to pool long-term care risk. He noted that hybrid products are priced at levels that are often no lower than the cost of buying the insurance policies separately. Given the complexity of these products, the author added, most consumers would require more education before being able to make an informed decision about which product best meets their individual needs.
