Is Brighthouse SmartCare a Smart Buy?
Brighthouse Financial is a new company in the long term care insurance arena. Heck, Brighthouse Financial is a new company in every arena.
Brighthouse is a 3 year old company.
In 2017 MetLife established Brighthouse Financial as a completely separate entity from MetLife to sell life insurance and annuities to individuals in the United States. MetLife will continue to sell insurance products to employer groups. With this spinoff, MetLife has no control over the Brighthouse operations. Brighthouse is a distinct public company and MetLife is only a shareholder, albeit with a 20% stake.
The Brighthouse SmartCare hybrid long term care insurance policy is the first new life insurance product launched by Brighthouse since becoming an independent company.
Brighthouse is a well capitalized company with $227 billion in assets, however in 2018 the Brighthouse new business operations only sold a total of $7 million of life insurance premium.
Thus, the launch of the SmartCare hybrid policy is an important component of the company's strategy to establish its competitive presence in the US life insurance market.
The development of SmartCare arrives at the convergence of two key retirement trends: the rising costs of health care and increased life expectancies.
Let's take a look at the new SmartCare policy and see how it fits into the fast growing hybrid long term care market.
Brighthouse SmartCare Is An Indexed Linked Hybrid Long Term Care Policy
Hybrid long term care policies can benefit you in 3 ways. Hybrid policies provide you with long term care benefits if needed, a death benefit if care is not needed, and a cash surrender value if you change your mind.
Unlike stand-alone traditional long term care insurance policies that are "use-it-or-lose-it", hybrid policies will benefit you whether you Live, Die or Quit.
Brighthouse SmartCare is a unique hybrid LTC policy in that it is built upon an Indexed Universal Life chassis.
Brighthouse SmartCare is the only hybrid long term care policy with an Extension of Benefits Rider that is an indexed universal life product.
Indexed Universal Life policies have non-guaranteed elements.
Indexed UL policies provide you with the opportunity to receive crediting interest from the insurance company that will be linked to the performance of an underlying stock market index, such as the S&P 500. Your policy is not directly invested in the market, however your policy cash value has the ability to receive positive interest credits through the annual performance of a market index. If the index performs well on an annual basis Brighthouse will credit your policy cash value with interest up to its pre-determined Cap Rate. If the market index is negative for the year, you would not receive any interest credit, however your cash value would not decline either.
Brighthouse may change the Cap Rate on an annual basis thereby controlling the interest credited to your policy.
Your long term care monthly benefits will have the potential to increase with market gains.
The indexed linked long term care option is 1 option of 3 options Brighthouse will provide you with when you design your policy, however it appears that this will be the option that Brighthouse - or the insurance salesmen - will want to "market" to you.
Brighthouse SmartCare is a Cash Indemnity Hybrid Policy
Long term care insurance policies have two types of payouts that you need to be aware of.
Long term care insurance policies may be either reimbursement models or cash indemnity models.
Reimbursement policies require you to submit receipts to the insurance company at claim time for reimbursement of your out-of-pocket qualified long term care expenses. With reimbursement policies, qualified long term care expenses will be defined in your contract.
Reimbursement policies will generally exclude care provided by family members. Examples of prominent reimbursement hybrid policies are Lincoln Moneyguard III and OneAmerica Asset Care.
Cash indemnity policies will not require you to submit receipts for reimbursement. Indemnity policies will provide you with your full monthly maximum benefit regardless of any out of pocket expense. You may spend the money on your care as your please. Your benefit will be income tax-free so long as you monthly LTC benefit is below the IRS Per Diem limit, currently at $380 day ($11,500 month).
Brighthouse SmartCare is one of a few cash indemnity hybrid policies. Two other excellent cash indemnity policies are Nationwide CareMatters II and Securian SecureCare.
One policy, Pacific Life PremierCare Choice, offers you a choice of both reimbursement or indemnity.
Designing Your Brighthouse Smartcare Benefits
Brighthouse Smartcare is available to applicants ages 40-75.
Each Smartcare policy will consist of a LTC Acceleration of Death Benefit Rider (LTC ADBR) and Extension of Benefits Rider (EOBR).
Step 1: Selecting Your Long Term Care Benefit Period
Brighthouse SmartCare has very limited choices when designing your benefits, especially when compared with alternative hybrid policies in the marketplace.
Like most hybrid long term care policies, the Acceleration of Death Benefit Rider will payout long term care benefits for the initial 2 years of your claim. Your death benefit will be reduced by this payout.
You will have only two choices when selecting your total long term care benefit period.
You may elect an Extension Of Benefits Rider of either 2 years or 4 years.
Selecting a 2 year EOBR will provide you with a total of 4 years of long term care benefits: 2 year ADBR + 2 year EOBR
Selecting a 4 year EOBR will provide you with a total of 6 years of long term care benefits: 2 year ADBR + 4 Year EOBR
These are the only 2 benefit period choices Smartcare offers you: A total of 4 years or a total of 6 years.
We will almost always recommend using the maximum benefit period for your best premium leverage. Of these two choices, you should focus on the 6 year combined benefit period.
Step 2: Choose Your Long Term Care Coverage Option
Your future long term care benefits will be determined by your choice of the Brighthouse LTC Coverage Option. Other long term care insurance policies will refer to this as the inflation protection option.
This LTC Coverage Option choice is important because it may be very important for you to grow your long term care benefits to keep up with inflation.
If you are a younger applicant your long term care claim may be 25-30 years away.
Brighthouse has 3 options for you to consider when choosing your LTC Coverage.
Level LTC: Your monthly long term care benefits remain level over time. No growth. Your monthly benefit will start higher, but will stay the same.
Fixed Growth LTC: Your long term care monthly benefit amounts will earn guaranteed 5% compound growth annually to help protect against inflation. Your monthly benefit with the Fixed Growth LTC option will start lower, but will exceed the LTC benefit amount with the Level LTC option when you are most likely to make a long term care claim, ages 75-90.
Indexed LTC: Your monthly long term care benefits will have the potential to increase with interest linked to a stock market index credited up to a non-guaranteed cap.
I really wish Brighthouse offered more guaranteed compound inflation protection options. The only guaranteed factor Brighthouse offers is 5% compound.
Almost every other hybrid policy in the marketplace offers a guaranteed 3% compound inflation option as well.
Instead of offering an affordable 3% compound guarantee, Brighthouse offers a non-guaranteed Indexed LTC Option. Interesting.
We will discuss the pros and cons of this Indexed LTC Option later.
Step 3: Choose Your Payment Schedule
Brighthouse allows funding to be completed either as a single premium payment or in installment payments up to 5 years.
Comparing Brighthouse Smartcare To Alternative Hybrid Long Term Care Policies
So, let's take a look at how the Brighthouse policy compares with alternative hybrid LTC policies in the marketplace.
Brighthouse is a 100% cash indemnity policy, so let's compare for you the SmartCare policy to alternative market leading cash indemnity hybrid LTC policies, Securian SecureCare and Nationwide CareMatters II, Pacific Life PremierCare and Lincoln Moneyguard.
To begin, let's only consider fixed guaranteed policy benefits. remember, Brightouse has a non-guaranteed policy option called Indexed LTC.
You are looking at these policies for guaranteed long term care coverage so it is important to buy guaranteed benefits since your long term care claim is likely to be many years from today.
Let's compare the Brighthouse policy first using its guaranteed 5% compound inflation option.
The competitor hybrid policies will have only guaranteed policy designs.
We will compare for you pricing for a 60 year old married couple.
Let's assume you pay a Single Premium of $100,000 with all companies.
60 Year Old Married Male, Non Smoker, Couples Discount, 6 year benefit periods
|Brighthouse 5%||$3626 mo||$9621 mo||$91,609|
|Securian 5%||$3958 mo||$10503 mo||$100,000|
|Nationwide 5%||$3987 mo||$10579 mo||$100,000|
|Pacific 5%||$3967 mo||$10525 mo||$100,000|
|Lincoln 5%||$3015 mo||$7999 mo||$100,000|
In looking at these benefits, the Brighthouse SmartCare policy is certainly not your best overall option using a 5% compound inflation factor.
Although the Brighthouse SmartCare policy is in a reasonable 10% range of the better values today.
Unlike the alternative policies, however the Brighthouse policy will not return to you 100% of your premium as a death benefit if you elect the guaranteed 5% compound inflation benefit.
Here is the Brighthouse SmartCare illustration.
60 year Old Married Male Brighthouse illustration
So, will a married female applicant with Brighthouse SmartCare fare better?
Let's take a look.
60 Year Old Married Female, Non-Smoker, Couples Discount, Single Pay Premium $100,000 6 Year Benefit Period
|Brighthouse 5% comp.||$2714 mo||$7201 mo||$68564|
|Securian 3% comp.||$4842 mo||$8745 mo||$116204|
|Nationwide 3% comp||$4717 mo||$8519 mo.||$113201|
|Lincoln 3% comp||$3529 mo||$6373||$101500|
|Pacific 5% simple||$4171 mo||$8343||$100120|
Well, if you are female, married and age 60, you have the same result here. Certainly you will have better options to consider if you want to have a guaranteed inflation adjusted long term care plan.
You can obtain greater monthly long term care benefits with alternative policies through Pacific Life, Securian and Nationwide and your loved ones are guaranteed to at least receive your premium back as death proceeds.
The alternative policies through Nationwide, Securian and Pacific Life also have more flexible inflation protection options for females to consider such as 3% compound and 5% simple that will provide much higher initial long term care coverage.
Here is the Brighthouse SmartCare illustration with 5% compound inflation protection for a 60 year old married female.
SmartCare illustration 60 year old Female
So, you can clearly see that if you are 60 years old, and married, the Brighthouse SmartCare policy might not be your very best option using guaranteed policy benefits.
Possibly your results could be different if you are a different age. Results for you can vary based upon your age, gender, and marital status.
Underwriting can also vary by company. Possibly Brighthouse could be a good option for you if alternative underwriters will not issue a policy to you, and Brighthouse will issue coverage. There are many factors to consider when selecting your policy. You will benefit if you work closely with one good agent that can objectively help you to analyze all of your policy options for you.
So, far we have reviewed the guaranteed LTC coverage policy options. If you recall, one option that Brighthouse SmartCare makes available to you is a non-guaranteed benefits option. This is the Indexed LTC Option.
What is the Brighthouse SmartCare Indexed LTC Option?
Brighthouse SmartCare is an Indexed Universal Life policy. Indexed Universal Life (IUL) policies credit annual interest to your policy up to a maximum annual cap declared annually by the insurance company based upon market gains of leading stock market indices such as the S&P 500 (large cap) , the Russell 2000 Index (small cap), and the MSCI EAFE Index (International). With index-linked universal life policies, you are not invested directly in the stock market. Your premium is placed into the general account of the insurance company. The insurance company invests your premium primarily in long term treasury bonds. With a small percentage of your premium the insurance company buys stock market options that allow the company to credit market linked interest to your policy if the market index is positive in given year. If the market index is negative you receive zero interest.
So the marketing selling point with indexed life insurance policies is you can grow your insurance policy benefits when stock markets rise, but when markets fall your policy does not lose.
Sounds great, right?
This is the Brighthouse SmartCare LTC Coverage Option that I will not be surprised if many insurance salesmen will pitch to their clients. Why, you ask?
Because the insurance salesmen can show hypothetical non-guaranteed rose-colored glasses illustrations that look better than illustrating the policy with the guaranteed elements. That is why.
Let's take a look at a hypothetical example to help you to understand how the Indexed LTC Option works.
To begin with, the Brighthouse SmartCare Initial Declared Cap in Year 1 of the Policy is 10%.
This means that Brighthouse will credit interest to your policy in the initial policy year up to 10% if the Point-to-Point Stock Market Index return is 10% or greater. If the Stock Market Index return is less than 10% you receive crediting interest equal to the annual index return.
If the Point-To-Point return is negative, you receive 0% interest.
Reinvested dividends are not included in the Annual Point-To-Point calculations.
Let's take a look at our hypothetical for the 60 year old married female, $100,000 Premium deposit.
This hypothetical is based upon the insurance company never changing the Cap of 10% for the life of the policy.
If the SmartCare Declared Cap remains 10% for the life of the policy, the average market linked interest you can expect to receive will be approximately 6%.
If you receive 6% interest every year forever, these would be your benefits.
|Age||Monthly LTC||Total LTC||Death Benefit|
These benefits look good, don't they? $9030 month at age 80, with a death benefit of $166,345.
Here is the illustration with an assumed Cap of 10% and an assumed crediting annual interest rate of 6%.
So, what's the catch? What can go wrong for you?
Well, a lot can go wrong for you actually.
You will notice throughout the illustration this disclosure language: "This illustration assumes that the above illustrated non-guaranteed elements will continue unchanged for all years shown. This is not likely to occur, and actual results may be more or less favorable than those shown."
You might receive a selling pitch from an agent that says "if the market goes up you win, if the market goes down, you do not lose" is just a selling pitch.
This pitch will have no relationship to your future Brighthouse interest crediting outcome.
Regardless as to whether your policy is credited positive interest when markets rise, and will not suffer a loss when markets lose value.
Your indexed life insurance policy premium is not directly invested in the market. I repeat - Your IUL policy will not be directly correlated to stock market performance.
Your UL policy has ongoing costs of insurance that increase annually with your age. If your interest credited by Brighthouse is not high enough your policy will not increase in value, and your monthly long term care benefits will not increase to keep up with inflation.
Your premium will be invested almost entirely into the general account of the life insurance company which will buy bonds with your premium.
Brighthouse will be relying upon long term treasury yields to provide policy guarantees.
With indexed universal life policies, Brighthouse will use a small amount of premium to buy index options as a hedging strategy to allow it to credit positive interest when markets indexes rise.
What economic environment will adversely impact universal life insurance policies?
Indexed universal life policies are most at risk with 2 environments:
- a declining low interest rate environment, and
- a volatile stock market.
A low interest rate environment places extreme pressure on the insurance company’s general account to generating long term yield for the insurance company.
A volatile stock market environment greatly increases the cost of buying options which allow the insurance company to attempt to hedge the interest rate risk of a rising stock market.
What Does This Mean For Your Brighthouse SmartCare Indexed Universal Life LTC Option
If you elect the Indexed LTC Coverage Option your success or failure with your future interest credits will directly depend upon the non-guaranteed elements in your policy remaining unchanged.
Your SmartCare policy has an initial Declared Cap of 10%. This means that your illustration is based upon the Declared Cap remaining 10% forever.
This is unlikely to occur.
The Guaranteed Minimum Declared Cap in the Brighthouse SmartCare contract is 3%.
Brighthouse has a unilateral ability to declare a lower Cap each policy anniversary as long as the Cap remains greater than 3%.
Insurance agents market illustrations based upon an initial high Cap.
It is very common for life insurance companies to reduce their IUL Caps once premium has been received and policy blocks of business have been in force for a few years.
With treasury yields declining significantly over the past 12 months, and with the current stock market volatility many life insurance are presently reducing Caps further.
Many agents do not understand the significant impact on a life insurance policy with simply reducing the Indexed Cap by 1-2%.
The above illustration and policy benefits are based upon a Cap remaining at 10%. Remember, with IUL policies, some years will be positive, some years will be negative. With a Cap at 10%, a crediting strategy will average 6%. If a cap is reduced slightly by the insurance company, for example to 8.50%, a crediting strategy may only produce 5% indexed linked interest as an historical average.
Would you like to see what happens with your Brighthouse SmartCare policy if I use a 5% indexed linked interest credit applied to your cash value instead of 6%?!?!
Female Age 60, Couples Discount, $100,000 Premium Deposit
|Age||Monthly LTC||Total LTC||Death Benefit|
You can see that it only takes a small adjustment to a hypothetical Declared Cap assumption for all of your Brighthouse SmartCare benefits to change.
Wave “Bye Bye” to all of the indexed linked LTC growth. With just a small swipe of a pencil and eraser.
You still get interest credited when markets rise, and lose nothing when markets fall. But guess what. It doesn't matter if your Declared Cap is not at 10%. With a lower declared Cap you may not average enough interest to overcome the cost of insurance in your contract. So, the indexed linked growth you were hoping for may never happen.
Here is the illustration.
Indexed Linked Smartcare Using 5% Assumed Crediting Rate
By the way, the Declared Cap is only one of many non-Guaranteed elements in the SmartCare contract.
The current fixed interest rate of 3.25% within the contract can be reduced. The minimum crediting rate of interest is 1.0%.
The current insurance charges inside the contract can also be changed and increased.
So, you need to be aware of an Indexed Universal Life LTC illustration with non-Guaranteed benefits, and how these non-guaranteed elements can change which will drastically impact your future long term care benefits.
If Brighthouse changes these elements, you will receive less annual interest credited to your contract.
Your cost of insurance increases each year with your new age.
Lower interest + increasing cost of insurance results in decreasing benefits.
This is why in the example above your monthly Long Term Care benefit actually decreases after age 80.
Should You Buy The Brighthouse SmartCare Indexed Hybrid LTC Policy?
Brighthouse Financial is a new company, and with new companies sometimes comes new ideas. I understand why Brighthouse developed a hybrid long term care policy using an Indexed Universal Life chassis. Certainly, the Brighthouse long term interest rate risk will be hedged with this Indexed Universal Life design if the Brighthouse policyholders elect the Indexed LTC Option. More accurately, I should state if the Brighthouse Financial Advisors push the Indexed LTC Option. Because make no mistake, Indexed Universal life policies are sold, not bought. Consumers absolutely do not understand the IUL moving parts, and most insurance agents do not understand the inherent risk with IUL either. If Brighthouse changes your the guaranteed elements slightly your overall long term care benefits will change greatly.
With this SmartCare contract for my younger clients ages 45-65 I will be most comfortable with the Fixed Growth LTC Coverage Option using the guaranteed 5% compound inflation option.
If you are trying to do long term care planning you will need to demand guarantees. Period. No compromises. You do not cross your fingers with insurance contracts.
Be smart with your decisions. Buy guarantees.
There are good elements to this SmartCare policy.
The SmartCare policy is a cash indemnity policy. Receipts are not required for reimbursement.
The SmartCare policy provides 100% of your benefits available for International Coverage.
Certainly for the right individual this policy can be attractive. I do receive a lot of inquiries from clients looking to maximize benefits for international coverage. Many policies have significant restrictions for international benefits. SmartCare does not.
I do, however, think the Brighthouse SmartCare policy can be improved upon.
I can look forward to one day seeing SmartCare II being developed!
My SmartCare II wish list:
I would like to see different inflation protection options being made available such as 3% compound.
I would like to see care coordination services included within the contract. Other underwriters such as Nationwide and Lincoln include care coordination as a benefit.
I would like to see more flexible long term care benefit period options made available such as 5 years or 7 years.
I would like to see the guaranteed death benefit equal to at least the premium paid.
For now though, Brighthouse SmartCare is a reasonable first effort, although the Indexed LTC Coverage policy does not come without some concerns.
Compare Your Best Hybrid Long Term Care Policy Options
Are you seeking you find your very best hybrid long term care option? Would you like to receive customized advice and guidance for your situation? You have come to the right place.
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I look forward to working together with you.