Nationwide has debuted a long-term care accelerated benefits rider for survivorship universal life insurance policies that company insiders informally dub the “parents rider.”
The “parents” moniker derives from the fact that the rider is designed for use with a survivorship universal life policy that can cover two insureds who are far apart in age, such as a parent and an adult child, said Eric Henderson, senior vice president-life insurance and annuities.
That is an uncommon design because survivorship life policies typically limit the age span between the two insureds to no more than 15 years, Henderson told InsuranceNewsNet. This traditional “age gap” limitation helps explain why survivorship life sales often go to couples where the difference in age is narrower.
Now, with the new survivorship life/LTC combination, Nationwide says it it is attracting parent/adult child co-insureds in the middle market as well as the more traditional survivorship market of high-net-worth couples. This is what the company set out to do, Henderson said.
No maximum age gap
The LTC rider is available with the Nationwide No-Lapse Guarantee SUL II (Survivorship Universal Life) policy. Each insured is still subject to the customary minimum and maximum purchase ages for the insurance and rider. However, as indicated, the two insureds can be far apart in age.
“We expect the intergenerational insureds will mostly be a parent with an adult child,” Henderson said.
He predicted that adults in the “sandwich” phase of their lives will be interested in the product. These adults may be raising families while also helping to take care of their parents, he said. Other prospective buyers may be adult children in families where the mother or father couldn’t get standalone long-term care insurance.
Other pairings are also possible as long as there is insurable interest. Examples include cases written on a 60-year-old grandparent and a college-aged grandchild, and cases written on multi-generational couples more than 15 years apart.
The ‘tell’ in early sales
Early sales suggest the policy already is attracting some of these broader survivorship demographics. The early cases include a number of middle-market joint applicants, many of them intergenerational, as well as some higher-net-worth couples, Henderson said.
“The typical cases we’re seeing are for people who have a need for a survivorship life policy with $1 million in death benefit and two LTC riders written for $500,000 each,” he said.
An analysis of the mix of life insurance to LTC rider benefits suggests that the LTC rider was an important factor in those cases. For example:
Under the policy guidelines, the maximum LTC benefit available per person is 50 percent of the life insurance specified amount (which is $5 million and above). But while actual applicants typically elected only 20 percent of the maximum specified amount (20 percent of $5 million = $1 million), they chose the maximum LTC benefit per insured (50 percent of the $1 million specified amount = $500,000 each).
In general, the LTC rider resembles accelerated death benefit LTC riders for life policies written on one person, but with adaptations for the two-life structure and the underlying survivorship universal life chassis. A few features follow:
The LTC rider is available to one or both insureds, subject to underwriting. The underwriting is “simpler” than LTC underwriting for standalone LTC policies, Henderson said, so it will be easier for parents with some health issues to qualify.
The rider provides monthly benefits for “qualified long-term care” services on one or both insureds, subject to conditions. These benefits accelerate a portion of the life policy death benefit which reduces with each payment (along with the life policy’s surrender value).
To qualify for LTC benefits, an insured must be certified as having a severe cognitive impairment or be unable to perform two or more activities of daily living for at least 90 days. The person must satisfy a 90-day elimination period and be under a “plan of care.”
Each rider pays LTC benefits for the insured to whom it is issued, but there is no pooling of LTC benefits between joint insureds.
At the second death, the life policy will, subject to conditions, pay a residual death benefit even if all LTC benefits have been exhausted.
Policy loans and partial surrenders are allowed, but these decrease the death and LTC benefits.
“With this product, the clients know that if they have the rider but never use the LTC benefits, the life insurance benefit will go to the adult child,” Henderson said.
The market seems ripe for innovation in this area. At least one insurer already is selling a whole life policy with LTC benefits. In addition, some advisors have bundled survivorship life policies with life/LTC hybrid policies to achieve a similar goal.
InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].