A New California Law Affects Life/LTC Hybrid Products

ThinkAdvisor recently published an article by Allison Bell that explains new California laws affecting life/long-term care hybrid products.

In a nutshell, the new law restricts certain access to cash withdrawals or loan options. Bell writes:

"If the underlying policy normally allows for policy loans or cash withdrawals, the policy may not 'prohibit or limit a loan or withdrawal while the insured receives payment of long-term care benefits, except as specified,' according to the bill text.

If, however, the payment of accelerated death benefits for use in long-term care caused the cash value of the policy to fall, the drop in the remaining cash value could affect future access to policy loans, according to the bill text."

Because of this new rule, carriers are required to warn policyholders of potential downfalls: "The issuer of a universal life policy that includes LTC coverage must provide a disclosure about the risk that the policy could lapse, along with an optional provision that protects the policyholder against the risk of lapse."

Bottom line: a Life/LTC hybrid may not have the cash value one expected from it.

As for traditional long-term care insurance plans, the law prohibits LTCI issuers from automatically increasing policy premium rates (effective 1/1/21). None of the carriers we work with have a plan design that automatically increases premium rates, so this is a non-issue for our agents and clients.

Read the whole article here.