So-called combo long-term care products, which blend LTC with annuities and life insurance, are likely to become increasingly popular as new provisions of the Pension Protection Act (PPA) of 2006 take effect this year and pricing benefits become clearer.
The suggestion was made in a recent article published by Financial Planning, whose parent company, SourceMedia, owns Voluntary.com InBrief.
Phyllis Shelton, president of LTC Consultants, cited combo plans and work site sales as “two bright spots” for LTC insurance considering that sales of this product have flattened or declined in recent years.
PPA changes that could fuel signups for a product that historically has trailed other lines in the worksite market include approval of LTC riders on annuity contracts, tax-free access to cash values for LTC coverage and LTC insurance eligibility for tax-deferred exchanges. The tax breaks will apply only to LTC policies that are “qualified” or “tax-qualified,” which LIMRA International describes as 99% of all such insurance.
Beth Ludden, senior vice president of LTC insurance product development for Genworth, cautioned that the tax issues surrounding these plans remain unsettled. She cited an IRS private letter ruling last year that could affect some product designs.
The LTC portion of a combo plan often costs 35% to 50% of standalone coverage, according to Carl Friedrich, a consulting actuary and principal for Milliman.
“The primary reason” for this, the article explains, “is that a portion of the combo coverage is, in a sense, self-insurance. That is, the LTC coverage is relatively inexpensive because payments for long-term care are an acceleration of benefits that eventually would be available to the insured individual as a surrender payout or to the insured’s beneficiaries as a death benefit.”
