Most people say their biggest fear in retirement is a need for long-term care that exhausts their savings. Yet, most people don’t have long-term care insurance. The biggest reasons given for not having LTCI is that it’s expensive and people are concerned about paying all the premiums and never claiming benefits.
In response, insurers created the hybrid or combination policies. These are annuities or life insurance that have long-term care riders. They’re controversial. As I’ve discussed in past issues of Retirement Watch, the hybrid coverage generally is more expensive and not as robust as stand-alone LTCI. But hybrids also don’t tie up all your money, unless you max out hte coverage (depending on the policy).
Here’s another view of hybrid policies. It explains in detail how some of the policies work and provides some pros and cons.
There actually are two ways to use life insurance to protect against long-term care risk. The first is to buy a life insurance policy with a chronic illness rider. This is an accelerated death-benefit rider that can pay out 2% of a death benefit monthly to pay for care. That means the policy must be very large in order to pay out a significant benefit. In most states, these policies aren’t formally classified as LTC policies.
The second option is a combination life/LTCI policy, such as Lincoln National’s MoneyGuard Reserve Plus. This is a universal life insurance policy with an optional LTC benefit rider. Policy premiums can be paid upfront or in installments during a 10-year period, and the premium rates are locked in at the time of purchase. There’s also a refund feature available to buyers who change their minds, after all premiums have been paid.
“The biggest driver of a combination policy is the need people have to protect their assets in the event of a catastrophic long-term care need but not tie up their funds in an illiquid investment,” says Steve Schoonveld, assistant vice president, head of linked benefit product solutions at Lincoln National.
One of the problems with many estates is the records are incomplete or unorganized. The executor and beneficiaries often don’t find out about all the assets available to them. One ripe source of unclaimed benefits is life insurance. Some estimate that there is $1 billion in unclaimed life insurance benefits. Many of the policy benefits probably are small. People often forget that they receive life insurance through employers, association memberships, and other sources. But sometimes a sizeable policy isn’t known to the beneficiaries.
It’s not easy to find unclaimed insurance benefits. Here’s a guide to the steps you can take to locate life insurance benefits you might be owed. (Subscription might be required.) Some insurers are being proactive in locating beneficiaries, but few are doing it at the moment. The burden is on you to find out if you are owed anything.
The American Council of Life Insurers, a trade group, lists on its website search tips including checking with the benefits office at a loved one’s latest and previous places of employment, or a union welfare office. It also suggests checking canceled checks to see if any were written to pay premiums.
The ACLI also advises checking the mail for one year after the death for premium notices, which usually are sent annually. If a policy has been paid up, there won’t be a notice of payments due, but the company might still send an annual notice about the policy and pay a dividend, the ACLI says.
Also, the group recommends reviewing old income-tax returns, looking for interest income from, and interest expenses paid to, life-insurance companies.
Life insurers pay about 99% of benefit claims without much question. But there are reports and law suits alleging that insurers are denying more claims than in the past and stretching facts and arguments to make those denials. Insurers, like other financial services firms, are suffering from low investment returns (or high losses) and the slumping economy. Most of the claim denials are under policies issued under employer plans or association plans. These policies are free from some restrictions that cover other types of policies in most states. Some allegations are that the insurers delay paying benefits so they can collect investment income for a while longer.
Life insurers do pay most claims in full—more than 99% of the time, according to data from the American Council of Life Insurers, a Washington-based trade group. Nobody keeps track of how often companies delay making those payments or how often they use spurious reasons.
As of 2009, the latest year for which figures are available, insurers in the U.S. were disputing an accumulated total of $1.3 billion in claims, the ACLI reports. Included in that amount was $396 million in death benefits turned down in 2009. In the same year, insurers paid out $59 billion, the ACLI reports.
The article provides several examples of cases some insurers denied.