Many Americans have no life insurance. A new, hybridized approach to long-term care is helping to attract new policyholders.
2019 saw 43% of Americans without life insurance, up from 41% in 2018. Expense is the number one reason, followed by perceived complications in the application process. But with global concern on the rise about COVID-19 and future pandemics, insurers have seen a sharp increase in the number of people looking for life coverage.
Buying in the face of an emergency likely doesn’t solve the life insurance gap in the long term, however. And here’s why hybrid insurance models might mitigate this issue by offering the best of two coverage types.
How a hybrid policy works
This blended coverage combines both life and long-term care (LTC) insurance to form an attractive package with several advantages for both policyholders and insurers. One hybrid feature that’s attracting customers is allowing for payouts based on early or accelerated payments of a death benefit, which could be extremely helpful in paying fees.
There’s no fixed price for long-term care, as it varies by needs and location. But last year’s data see annual long-term care expenses ranging from an average of $48,612 to $102,200, dependent on type.
Those numbers are bound to climb with inflation, of course. And with 27 million Americans projected to need LTC by 2050, this hybrid addition to life coverage is making people take notice.
Hybrids are more flexible than either a life or an LTC policy alone. For example, hybrid plans can be funded upfront rather than monthly (as in traditional models), though the freedom to pay incrementally is also there.
Payouts can be made in the same manner, either as a lump sum or monthly amounts that are pre-set by the policyholder at the start of the coverage. Some providers even offer hybrid coverage perks like no waiting period, no deductible, and medical underwriting that’s less rigorous than traditional policies.
More benefits of hybrid policies
Hybrid premiums are also fixed from the outset for the life of the policy. This is a big benefit that offers a solid defense against rising LTC costs and premium hikes. To put this perk into perspective, Florida Blue Cross Blue Shield contacted customers in 2019 to announce a 94% rate increase through 2021. Worse, significant price hikes may be coming from many providers due to the industry fallout from COVID-19.
Add to this the fact that hybrid LTC coverage offers a 100% money-back guarantee if policyholders change their mind (typically allowed only after a certain period has elapsed)—plus provides their estate a tax-free life insurance benefit if LTC is never needed—and the high hopes for hybrids extending coverage to more people don’t seem unreasonable.
How hybrids help insurers
A higher number of interested consumers means a healthier market and higher income levels for insurers. LIMRA data via the Society of Actuaries showed a 14% growth in average annual premium sales, with hybrids accounting for 27% of all life insurance sales in 2018, and 85% of long-term care sales. The upsides of hybrid policies also seem to be making it easier for insurance advisors to broach tough topics with potential buyers, like those surrounding health and mortality.
The potential pitfalls of hybrid policies
Like every type of coverage, the best hybrid deal is found through shopping around. Consumers may find these plans expensive at first glance and either abandon the idea or pay more than they must. It’s true that since hybrids offer two policies in one, they’re naturally going to cost more. But “more” is becoming a flexible figure as the plans gain in popularity.
Another drawback is that LTC payouts reduce the life insurance policy’s death benefit and/or cash value. This means that should the policyholder require LTC for an extended period, their beneficiaries may get little to no benefit after the policyholder dies. In the event of extremely expensive LTC, it may ultimately become necessary to have a traditional life insurance policy, too.
It’s also important to study a hybrid policy for its time-based limitation on returns. For instance, if a hybrid plan must be active for two years before a withdrawal can be made, but withdrawal is necessary before this time, there may be fees attached.
In addition, there’s a downside to having rates locked in against inflation—they’re also locked out against favorable interest. Insurers aren’t under any obligation to pay their hybrid policyholders at interest rates that reflect the market. So, if rates go up, there’s no guarantee that policyholders will receive the difference.
No one type of insurance is perfect for every situation. It’s important to speak to a qualified advisor who can make all of your options clear while keeping a level head in the face of illness, questions about mortality, and pandemics. The NICRIS team is ready to assist you.
NICRIS Insurance focuses on providing clients with the appropriate suite of products to protect them, their interests, and their loved ones. If you need some insurance advice or would like a free, personalized insurance review, just drop us a line.