How estate-planning advantages fuelled advance of hybrid insurance

The product, which improves upon an old middle-class offering, is now being pitched more to the wealthy

How estate-planning advantages fuelled advance of hybrid insurance

Given the challenge of projecting lifespans accurately, the risk of developing chronic and degenerative diseases, and rising costs of healthcare, even those with the biggest nest eggs can see it all evaporate. That hasn’t been lost on wealthy couples and individuals who want to protect their wealth — and are increasingly turning to a decades-old insurance product with a twist.

“[Hybrid insurance products] are reshaping the long-term-care niche of the US insurance industry just as it had appeared headed for obsolescence,” reported the Wall Street Journal. Hybrid insurance differs from traditional plans because it offers benefits beyond simple long-term-care coverage.

Citing LIMRA, the Journal said 260,000 Americans purchased hybrid insurance last year, compared to only 66,000 who bought traditional long-term-care policies. In the ‘90s, insurers focused on middle-class households who risk draining their savings because of healthcare costs; today, many are finding their best opportunities to sell hybrid policies with affluent Americans who want to shield their estates.

In the US, many advisors favour standalone and hybrid offerings from MassMutual, New York Life Inurance, and Northwestern Mutual Life Insurance. Jessica Galligan Goldsmith, a lawyer in her mid-50s interviewed by the Journal, said she and her husband purchased hybrid policies from a unit of Nationwide Mutual Insurance last year. They’ll pay a total of US$320,000 in premiums over a decade for benefits exceeding US$1 million apiece by the time they’re in their 80s.

According to US federal government projections, a quarter of Americans turning 65 between 2015 and 2019 will require up to two years of long-term care; 12% will need two to five years, and 14% will need more than that. Estimating costs at US$15 per hour, round-the-clock care specialists would run US$131,400 a year.

There’s wide variation among hybrid policies, which can offer different extra features aside from long-term care. Many offer death benefits, which typically decrease by up to 80% based on the insured’s use of their long-term-care coverage. Asset-based long-term-care policies, a flavour of hybrid insurance that the Journal focused on, also come with a guarantee that premium rates won’t increase. Another inclusion known as a “return of premium” feature allows buyers to recoup much of their money if they want to withdraw from the arrangement; the insurer will retain a certain amount based on interest charges.

Policies can also be differentiated based on their long-term-care offerings. The Goldsmiths’ policies offer benefits payable in cash for severe, physician-certified cognitive impairment or inability to perform daily activities like bathing, eating, and dressing. But they were particularly attracted to the fact that they don’t need to submit receipts to obtain long-term-care proceeds.

“Receipts are very hard for older people to deal with, especially when stressed by caring for a disabled spouse or being disabled themselves,” Goldsmith said.