LIFE AND LONG-TERM CARE CONVERSATIONS

Ten crucial questions you should be asking—even if carriers don’t want you to

[An] appeal of hybrid life and long-term care

products can often come from the fact that they

are not “use it or lose it” propositions.

By Adam Bezman

The growing need for long-term care is a topic that’s been covered a lot in recent months. Rising costs of care, demographic changes and legislation have become central topics of conversation for brokers and their clients in 2023. Amidst a growing market trend toward more hybrid life and long-term care solutions, brokers are asking, “What’s the right life insurance and long-term care solution for my clients?”

There are many products on the market, each with relative strengths and weaknesses. Of course, different situations will call for different products.

It’s going to pay to get smarter about hybrid products as they become more popular in the marketplace, and that means asking carriers lots of questions. As you begin your research, you’ll start to see that there are many different directions to take a conversation about life and care products.

To focus your conversations, there are a number of key areas you can target with key questions that will let you differentiate the products in the market.

Long-term care benefits

The rise in the need for long-term care means that, for many, care benefits take on even greater importance. For many, the care benefits are the most important part of the hybrid policy, so make sure to ask the following questions:

What kind of long-term care benefits are available? Different clients will have different care needs. Are benefits available for professional care only, or can you receive benefits for family caregiving as well? Look carefully at the costs of care and who may be most likely to be the care provider for a given employee group.

Is permanency a requirement? Benefits covering care can take various forms—each with different pros and cons. One of the more common areas of confusion is a question of permanency when it comes specifically to chronic care benefits. These products can look very similar to long-term care, but may require that the policyholder’s need for care be permanent before they’ll pay benefits.

This may not always be the best fit, particularly if you’re dealing with a younger demographic. In those cases, it’s possible that they may go on long-term care due to sickness or injury from which they expect to recover. Permanency requirements increase the chances that a claim will be denied.

Can you extend care benefits? Features may be available to extend the amount of care benefits available to policyholders. With many policyholders buying coverage for long-term care benefits, what options are available to maximize care protection?

Will you be able to collect long-term care benefits up to the full-face amount of the policy? Some hybrid products have a death benefit that reduces at some point in the life of the policy. Depending on the product design, your care benefit may or may not reduce when the death benefit reduces.

Other products may pay a discounted care benefit, meaning that your death benefit will be reduced by a greater amount than the care benefit you collect. It’s important to know how the product will function so there are no unexpected surprises when you go to collect care benefits.

The death benefit

The appeal of hybrid life and long-term care products can often come from the fact that they are not “use it or lose it” propositions. Even if the insured never requires care, their beneficiary will receive a death benefit. While the death benefit payment may seem straightforward, you might want to consider the following questions:

Is death benefit restoration available and how does it work? Policies typically advance the available death benefit as a means to pay for care. When this happens, you may be able to restore the death benefit that’s advanced to pay for care. But it’s important to know exactly how the death benefit gets restored. Is it fully restored to the original amount? Is it restored immediately?

Is it possible to reduce the death benefit in later years as needs change? Some products allow for changes in the death benefit (either scheduled or at the policyholder’s discretion as discussed above). With some products, this will impact the long-term care benefits, but with others it will not. It’s important to understand the difference in how the reductions operate and how they may affect the care benefits (particularly at a time where they may be needed most).

What happens if a policyholder doesn’t want to pay for coverage anymore? Some policies may include cash value that can fund the policy for a period after payments stop (or be taken as cash if the coverage is no longer needed). With other policies, you may be able to maintain a level of coverage even after you stop paying premiums. Be sure to ask what that looks like and what options are available.

Understanding product structure

Product structure can often break down into a question of stability versus flexibility.

What type of life insurance product is being offered? We’ve seen products built on different chassis: whole life, universal life and even term life. Each of these structures has benefits and drawbacks and, even within these types of life insurance, there can be significant differences from one insurer to another. Knowing the structure can often lead to other questions.

How much flexibility is available? Products like universal life can be structured many ways, with benefits designed to last for many different ages, some more or less conservative in design. Universal life typically offers the flexibility to adjust payments or the death benefit, but policyholders need to be thoughtful about how this impacts their policy.

On the other hand, other permanent life products may be fully guaranteed and can offer more stability, but you may sacrifice having the flexibility of universal life and may pay more in premiums. There’s a tradeoff either way and you’ll want to understand the products and the needs of your clients to balance flexibility versus stability.

Can the product change? Are premiums fixed or flexible? Could costs increase based on claims experience? Do the same terms apply to both the life and long-term care portions of the contract (i.e., is one guaranteed while the other is not)? This will help you understand where there is risk in the contract. Insurers have much more experience with life insurance than benefits for long-term care, so it’s important to understand what parts of the contract the insurer has flexibility to change—if any.

Conclusion

With a growing need for care and a growing focus on hybrid life and care solutions, the care conversation is more important than ever. These questions can help set you on a path to determining the right products for your clients, but they are by no means exhaustive. Talk to a sales representative that you trust, get to know them and their products, think carefully about the needs of your clients and don’t be afraid to make them squirm a little bit with the tough questions above.

The author

Adam Bezman is the executive director of product and innovation at Trustmark.