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Hedges of LTCI Combo Products (Product Market (Life/LTCI combo (Benefit…
Hedges of LTCI Combo Products
Hedges from Combo
When receiving one benefits, the other benefits are reduced
LTCI benefits are not 100% correlated to base benefits
Product Market
Life/LTCI combo
LTCI future benefit payouts also lower base benefits
LTCI as a rider on WL, UL, VUL
Benefit approaches
Lien approach
(Debt)
Upon death and surrender, DB = Face amt - Lien
Face amt stays intact => higher CSV and NAR than AB
Lien = sum of all LTCI pmt
Lien accrues as long as alive
Extension of Benefits (EOB) rider
After LTCI ben pmt exhausts ben pool,
EOB extends LTCI ben pmt beyond exhaustion
Usually combined with AB;
AB runs out => EOB kicks in
Indep. of life DB => not reducing DB
Accelerated benefit (AB) structure
LTCI ben continues until pool is exhausted
LTCI benefits pays out
=> lower DB dollar for dollar
=> lower CSV proportionally
Max(LTCI Benefits) =>defined at issue, "benefit pool"
=>
usually link to life face amount
LTCI ben pmt
Lower CSV => pro rata basis
Lowers Face => dollar-for-dollar
Annuity/LTCI combo
Product structure
Coinsurance design
AB & indep benefits are paid in fixed proportion until LTCI pool is exhausted
Tail design
Then pay level benefit if still LTCI qualified
First LTCI pmt exhaust pool
<=> AB + EOB
Pool design
NAR = Ben pool - AV
Chrgs are based on NAR
Set LTCI pool at issue (e.g. 300% of AV)
LTCI ben pmt reduce pool & AV dollar-for-dollar
When AV is exhausted, continue until pool is exhausted
LTCI benefit pool => account value
Standalone LTCI
Benefit pool doesn't accrue with interest;
AV accrues with interes
Misc
Combo has lower premium than premiums of two separate coverage
standalone LTCI is highly lapse-supported
