Quantification of Natural Hedge of LTC Combos

Question 1

Product structure for life and LTCI combo plans (4)

Answer 1

1. LTCI benefits are provided as riders or benefit provisions in universal life, variable universal life, indexed universal life, and whole life insurance plans
2. LTC benefits are typically paid out as an accelerated benefit. Payments are accompanied by dollar for dollar reductions in the life policy face amount.
3. The cost of this benefit is the cost of accelerating the payment that otherwise would be paid at death.
4. Independent LTCI riders (extension of benefit riders) are increasingly being sold together with an accelerated benefit rider. The independent benefit begins once the accelerated benefit provision ends.

Question 2

Product structure for annuity and LTCI combo plans (1)

Answer 2

1. LTCI benefits are provided together with a fixed annuity (most common), variable annuity, or an equity-indexed annuity.

Question 3

Common benefit payout structure for annuity and LTCI combo plans (3)

Answer 3

1. Tail design - LTCI benefits are paid from the AV until max accelerated benefit has been exhausted. Then an extension of benefit provision continues payments at the same monthly level for a specified period of time.
2. Coinsurance Approach - accelearted and independent benefits are paid concurrently in fixed proportions until the LTCI benefit limit is exhausted.
3. Pool design - benefits are based on max LTCI pool amount defined as issue (ex. 300% of AV). Benefits payments reduce the LTCI pool and AV on a $ for $ basis until AV is depleted. Then ind benefits are payable until max LTCI pool has been paid out in full.