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Back in the 70’s I was taught at Mutual of Omaha that making a sale was great, but that agents and companies really made their best profit from the added bells and whistles. “For just $6 more dollars a month we could add a Cancer policy” or “You should really add a waiver of premium rider to your disability income policy” or “What would really round out this life insurance policy is an added accidental death rider”. Today’s bells and whistles are different, but not really. They are there to create excess profit for life insurance companies.

One of the bells that is hot right now is a long term care (LTC) rider. It will allow you to use the death benefit from your life insurance to pay long term care costs should you be in a position of not being able to take care of yourself. It could pay for home health care, nursing home care and in some cases assisted living facilities. The monthly amount it will pay is usually arrived at by taking your death benefit and dividing it by 48. So, if your life insurance would pay $100,000 upon your death it could also pay just over $2000 a month for up to four years for long term care. They charge extra for this feature, of course, but here’s the hitch. Each time you take a check for $2000 it reduces the face amount of the policy by that much, so if you were in a nursing home for four years you wouldn’t have any life insurance, or LTC left.

That would be OK except that almost always the need for LTC comes before the need for life insurance. So really if you use up the death benefit what you’ve been paying for all those years is a small long term care policy. And that was an excessively priced LTC policy because it was also carrying the cost of the life insurance and visa versa, if you die before using LTC you will have paid too much for the life insurance. I had a client looking at one of these policies and I suggested to him that we look at separate policies to see if it would really cost more to have a stand alone $100,000 life insurance and a stand alone LTC policy that paid $2000 a month for 4 years.

Using his Transamerica combination policy price, I quoted separate policies and actually saved a few dollars a month. No big deal on the savings, but without the bell and whistle tied together the client could be in long term care for 4 years and still have $100,000 of life insurance in force. On the flip side if he died prior to needing long term care he would have paid a lot less for his long term care. Do life insurance and long term care insurance companies know this? Of course they do, but this is the life insurance version of bundling and it spells big profits for them. The same result comes when  you look at the cost of buying waiver of premium (disability insurance that pays your premium if you’re, well, disabled). It is far more cost effective to have life insurance as a stand alone product and buy a small disability policy.

Bottom line. Cable and phone companies don’t bundle because it makes it easier for you, but because they can get you to sign up for more things and increase their profit per customer ratio. Life insurance companies are no different. While they can provide a basic service that provides a complete solution to your need, they can also make things cute with bells and whistles that have value but are a great hiding place for high rates. If you have questions or have or are considering a life insurance combination product, call or email me directly. My name is Ed Hinerman. Let’s talk.