Hybrid UL with Long Term Care Rider
How it Works
The Long Term Care claim payment is initially an acceleration of the death benefit. Each Long Term Care (LTC) benefit payment reduces the Base Policy Specified Amount and the Initial Benefit Rider (IBR) coverage amount on a dollar for dollar basis. The Account Value is reduced in the same proportion as the LTC claim payment is to the current Specified Amount. An example follows:
Base Specified Amount = $200,000
IBR coverage = $200,000 (Assume a 24 month benefit period)
Account Value = $100,000
Maximum monthly benefit = $200,000/24 = $8,333.33
Both the Base coverage and IBR coverage would be reduced by the benefit claim amount. If less than the maximum limit is paid, then the benefit continues until the aggregate lifetime benefit amount is paid. In this example we will assume the claim payment was $8,333.33, therefore both coverages would be reduced to $191,666.67 which will provide that amount as both the remaining death benefit and LTC benefit amounts.
The Account Value would be reduced by the ratio of the LTC claim payment in relation to the current Specified Amount.
Account Value Reduction Amount = 8,333.33 / 200,000 = .0416667 x 100,000 = 4,166.67.
Adjusted Account Value = 100,000 – 4,166.67 = 95,833.33.
The following month, the Account Value would be reduced as follows:
Account Value Reduction Amount = 8,333.33 / 191,667.67 = .043478 x 95,833.33 = 4,166.64.
Adjusted Account Value = 95,833.33 – 4,166.64 = 91,666.69
Although loans typically cause the No Lapse Guarantee and the Return of Premium benefit to drop, if a loan was on the contract, 1/24 of it would be paid and the LTC benefit payment would have been reduced by that loan payment amount.
Example, if loan was $20,000 then loan payment would have been $833.33 and the LTC benefit (the check) would have been netted to $7,500.00. There are issues with loan interest and the recalculation of the outstanding loan amount on anniversary. You could additionally reduce the LTC benefit payment by loan interest each year in order to keep the schedule which will pay the loan off over the same benefit period.
Once the Initial Benefit Amount is depleted, the LTC benefits stop unless you had purchased the Extended Benefit Rider (EBR). This benefit initiates the LTC insurance component.
The EBR extends the maximum monthly benefit that was on the contract for an additional period. The claim payment duration chosen on the EBR determines the coverage amount on the EBR. If 24 months was selected then the coverage amount of the EBR would be $200,000. Thus extending the $8,333.33 for another 24 months. If 48 months had been chosen then the coverage amount of the EBR would be $400,000. The EBR coverage is reduced in the same manner as the IBR example above for each claim payment.
Each benefit payment reduces the Return of Premium amount dollar for dollar while disbursing the Initial Benefit Amount.
The Death Benefit at any time is the greater of the remaining Death Benefit on the Base Coverage or a Residual Death Benefit if applicable. One example of a Residual Death Benefit is the lesser of:
- 10% of the Specified Amount at issue less 10% of loans and withdrawals or
- $25,000 less 10% of loans and withdrawals
These products also typically provide for cost of living or scheduled increases as well as providing for No Lapse Guarantees and discount features based upon various factors.
LIDP Consulting Services, Inc. provides consulting services and software solutions to the life, health and annuity industry. Software solutions include policy administration, claim administration and agency management. For more information on scheduling a demonstration of any of our systems, please contact us.