Published by Scott Smith on April 18th, 2019

“Necessity is the mother of innovation.” With dwindling options for long-term care insurance and a growing need for consumers to account for care, this phrase rings particularly true. In recent years, we’ve seen that bundling long-term care (LTC) with universal life seems to have been the innovative solution to tackle the need. But as with any new and mold-breaking idea, sometimes there is skepticism: can a bundled product provide sufficient protection to meet consumer needs? Well, our truthful answer is: “Yes, but not always.” 

When evaluating a bundled solution that encompasses universal life and LTC, it’s essential to ask the right questions. The wrong policy can leave employers and employees frustrated and, at worst, in financial peril when faced with LTC. So, to help get you started, we’ve put together some questions you can start looking into to make sure that a universal life policy can truly and fully address the issue of LTC.

How long do long-term care benefits last?

The average duration of lifetime LTC need in the U.S. is 3 years.1 So, if you’re looking at LTC benefits, they need to be able to cover a duration of care for a significant period of time to truly tackle a consumer’s needs. Whether that’s through offering a generous coverage amount on the base policy or including features that allow policyholders to extend their LTC benefits, it’s important to make sure a sufficient benefit period is available.

How are long-term care benefits triggered?

How benefits are triggered can be a tricky nuance to the hybrid universal life marketplace and there’s an important distinction to be made between LTC coverage and “chronic care” coverage. LTC benefits are typically triggered if the policyholder requires assistance with two activities of daily living (e.g. eating, dressing, etc). Chronic care benefits are triggered in much the same way, with the qualification that the condition is expected to be permanent. 

When you consider that 40 percent of adults who need help with everyday activities are under the age of 65, you have to expect that many people expect to recover from their need for LTC.2 To truly and fully address the need for LTC, be sure to consider all situations and how the benefit triggers might affect a significant portion of people who need LTC.

Is restoration an option? And how does it work?

The beauty of a hybrid life insurance product is that it’s essentially two products in one: life insurance and LTC. But, the long-term care benefit drains the death benefit to pay for LTC which means that a policy needs to have some way to restore the death benefit used for LTC. What’s important to consider is how much of the death benefit is restored. This can be 25 percent, 50 percent or even 100 percent restoration of the death benefit. 

Timing is also important to consider when looking at restoration. Some policies will immediately restore the death benefit whereas other policies will not restore until the entire death benefit has been completely used on LTC. This can put a policyholder in a situation where, if they use the majority (but not all) of their policy on LTC, they will have very little death benefit to protect their family if they pass away. Since much of the value of a hybrid policy comes from combining both LTC and life insurance benefits, understanding how a policy handles restoration will help determine whether a policyholder will truly get maximum protection from both features.

Is it a conditionally renewable product? Or a guaranteed renewable product?

While it is a nuanced distinction, there are pros and cons to conditional renewability and guaranteed renewability. With a conditionally renewable contract, generally, prices are slightly lower, but the contract is between the insurer and the employer, meaning the insurer can alter the policyholder’s protection at renewal. This may mean increased costs or unexpected coverage changes for consumers. 

With a guaranteed renewable product, the contract is between the insurer and the policyholder and the insurer cannot alter the policyholder’s protection. So, when looking at LTC, it’s a choice between price and stability. If you truly want to make sure the LTC coverage on a hybrid policy is going to permanently fulfill the policyholder’s need, we here at Trustmark feel a guaranteed renewable policy is the way to go.

Consumers today need a solution for long-term care - the need is growing while the options for long-term care insurance are shrinking. A hybrid universal life and LTC policy can be the solution, but to really cover employees in the way they need, it has to be the right policy. Be sure you’re weighing the options carefully and asking the right questions to give consumers the protection they need.

1 Cost and Incidence of Long-Term Care. Forbes. Jan. 5, 2016.
2 Long-term support and services. AARP Public Policy Institute. March, 2017.