Brighthouse SmartCare Hybrid Long Term Care Insurance Review

Introduction to Brighthouse Financial

Brighthouse Financial is one of the largest providers of annuities and life insurance in the United States. The company was established in 2017 when it was spun off from MetLife, one of the world's largest insurance organizations. This heritage is important because Brighthouse inherited MetLife's extensive experience in product development, risk management, and claims administration, including deep expertise in long-term care insurance.

MetLife was historically one of the major players in the standalone long-term care insurance market before exiting new sales of traditional LTC products. When Brighthouse was created as an independent company, it brought with it significant institutional knowledge about long-term care costs, claims patterns, and product design. This background informs the design and management of the SmartCare hybrid long-term care insurance product.

Brighthouse Financial is headquartered in Charlotte, North Carolina, and is publicly traded on the NASDAQ stock exchange. The company manages over $200 billion in assets and serves millions of customers across the United States. As a focused life insurance and annuity company, Brighthouse is dedicated to helping Americans plan for retirement and protect against financial risks, including the substantial risk of long-term care costs.

What Is Brighthouse SmartCare?

Brighthouse SmartCare is a hybrid long-term care insurance product built on a variable universal life (VUL) insurance chassis. This makes it fundamentally different from many competing hybrid LTC products that use whole life or fixed universal life insurance as their foundation. The variable component means that a portion of the policy's cash value can be invested in sub-accounts similar to mutual funds, giving the policyholder the potential for higher returns, but also introducing investment risk.

SmartCare is designed to serve three potential needs with a single product:

• Long-term care protection: If the policyholder needs long-term care, the policy provides substantial monthly benefits to help pay for nursing home care, assisted living, home health care, and other qualifying services.
• Death benefit protection: If the policyholder passes away without needing long-term care, the death benefit is paid to beneficiaries income-tax-free.
• Cash value accumulation: The policy builds cash value that can grow through investment in the policy's sub-accounts, providing a potential source of funds that can be accessed through policy loans or withdrawals.

The Variable Universal Life Foundation

Understanding the VUL chassis is essential to evaluating SmartCare. Variable universal life insurance combines the flexibility of universal life insurance with the investment options of variable life insurance. Here is what that means in practice:

Investment Sub-Accounts

SmartCare policyholders can allocate their policy's cash value among a menu of investment sub-accounts. These sub-accounts invest in diversified portfolios of stocks, bonds, and other assets, similar to mutual funds. The performance of these sub-accounts directly affects the policy's cash value growth. Available sub-account options typically include:

• Conservative bond and fixed income portfolios
• Balanced portfolios mixing stocks and bonds
• Growth-oriented equity portfolios
• Index-tracking portfolios
• A fixed account option with a guaranteed minimum interest rate

This investment flexibility is a double-edged sword. In favorable market environments, the cash value can grow faster than fixed alternatives, potentially resulting in a larger death benefit and more resources available over time. However, in down markets, the cash value can decline, potentially requiring additional premiums to keep the policy in force.

Flexible Premiums

Like all universal life products, SmartCare offers premium payment flexibility. Policyholders can generally pay more in some years and less in others, within certain limits, as long as the policy maintains sufficient cash value to cover the internal insurance charges. This flexibility can be valuable for individuals whose income or cash flow varies from year to year. Payment options typically include:

• Single premium: A one-time lump-sum payment that fully funds the policy.
• Limited pay: Premium payments over a defined period, such as 5 or 10 years.
• Ongoing premiums: Regular premium payments for as long as the policy is in force.
• Flexible payments: The ability to vary premium amounts within the policy's limits.

Death Benefit Options

SmartCare typically offers multiple death benefit options that affect how the policy performs and how benefits are calculated:

• Level death benefit: The death benefit remains constant, and as cash value grows, the net amount at risk for the insurance company decreases, which can result in lower cost of insurance charges over time.
• Increasing death benefit: The death benefit equals the face amount plus the accumulated cash value, providing a growing death benefit but at higher cost of insurance charges.

Long-Term Care Benefits in SmartCare

The long-term care component of SmartCare is triggered when the policyholder is unable to perform two of six activities of daily living (bathing, dressing, toileting, transferring, continence, and eating) or has a severe cognitive impairment such as Alzheimer's disease or dementia. Once qualified, the policy provides:

• Monthly LTC benefit: A set monthly amount that can be used to pay for qualifying long-term care services. This amount is typically a percentage of the death benefit, paid out over a defined benefit period.
• Accelerated death benefit: The LTC benefits are drawn from the policy's death benefit, meaning that any amount used for long-term care reduces the remaining death benefit available to beneficiaries.
• Extension of benefits: SmartCare includes or offers an extension of benefits feature that continues paying LTC benefits after the death benefit has been fully used for care. This can significantly extend the total duration and amount of LTC coverage.
• Elimination period: There is typically a waiting period (often 90 days) before LTC benefits begin. During this period, the policyholder is responsible for their own care costs.
• Covered services: Benefits can be used for a broad range of care settings, including nursing home care, assisted living facilities, memory care units, home health aides, adult day care centers, and hospice care.

The Investment Component: Opportunity and Risk

SmartCare's investment component is what most clearly distinguishes it from competing hybrid LTC products. While products from carriers like MassMutual (CareChoice) offer guaranteed cash value growth through whole life insurance, and Lincoln Financial (MoneyGuard III) uses fixed universal life with declared interest rates, SmartCare allows policyholders to participate in market growth through variable sub-accounts.

This investment component creates potential advantages and risks that must be carefully considered:

Potential Advantages of the Investment Component

• Higher growth potential: Over long time horizons, equity-oriented investments have historically outperformed fixed-rate alternatives. This means SmartCare's cash value has the potential to grow faster than fixed products, which could result in a larger death benefit over time.
• Informal inflation hedge: If the investment sub-accounts perform well, the growing cash value can help the policy's overall value keep pace with inflation, including the rising costs of long-term care.
• Tax-deferred growth: Investment gains within the VUL policy grow tax-deferred, meaning no capital gains taxes are owed as the sub-accounts increase in value. This can be a significant advantage for individuals in higher tax brackets.
• Portfolio customization: Policyholders can choose sub-accounts that align with their risk tolerance and investment philosophy, from conservative to aggressive.

Risks of the Investment Component

• Market risk: Unlike guaranteed products, the cash value of a VUL policy can decline if the investment sub-accounts perform poorly. A sustained market downturn could erode the policy's cash value significantly.
• Potential for increased premiums: If investment performance is poor, the cash value may not be sufficient to cover the policy's internal charges, requiring additional premium payments to keep the policy in force.
• Complexity: Managing investment allocations within an insurance product adds a layer of complexity that is not present in fixed products. Policyholders must monitor their sub-account performance and may need to rebalance periodically.
• Higher internal costs: VUL policies typically have higher internal expense charges than fixed universal life or whole life products, reflecting the cost of managing the investment sub-accounts.

Financial Strength and Ratings

Brighthouse Financial maintains solid financial strength ratings from the major rating agencies:

• A.M. Best: A (Excellent) - This rating reflects Brighthouse's strong balance sheet and favorable operating performance.
• Standard & Poor's: A (Strong) - S&P's rating indicates a strong capacity to meet financial commitments.
• Moody's: A3 (Good) - Moody's rating reflects an upper-medium grade financial position.

While Brighthouse's ratings are solid, they are a step below the highest-rated carriers in the hybrid LTC space. Companies like MassMutual (A++ from A.M. Best) and John Hancock (A+ from A.M. Best) carry higher ratings. This is a factor to consider given the long-term nature of hybrid LTC policies, though Brighthouse's ratings still indicate a financially strong company with a strong ability to meet policyholder obligations.

Underwriting and Eligibility

SmartCare requires both life insurance and long-term care underwriting. The process typically includes:

• A comprehensive health questionnaire
• A paramedical examination with blood work in many cases
• A review of medical records from your physicians
• A cognitive screening for older applicants
• Financial suitability assessment to ensure the product is appropriate

Because SmartCare is a variable product, there may also be suitability requirements to ensure that the policyholder understands the investment risks involved. Financial advisors selling variable products must hold appropriate securities licenses (Series 6 or Series 7 and Series 63 or Series 66), and the sale is subject to broker-dealer supervision.

Pros of Brighthouse SmartCare

• Investment growth potential: The variable sub-accounts offer the possibility of higher cash value growth compared to fixed products, which could enhance the overall value of the policy over time.
• Tax-deferred investment growth: Cash value accumulation grows tax-deferred, providing a tax advantage over investing in taxable accounts.
• Triple benefit design: Long-term care protection, death benefit, and cash value accumulation in a single product address multiple financial planning needs.
• Flexible premiums: The universal life structure allows for premium payment flexibility to accommodate changing financial circumstances.
• MetLife heritage: Brighthouse benefits from MetLife's decades of experience in insurance product design and claims management.
• Extension of benefits: The ability to extend LTC benefits beyond the death benefit significantly increases total available protection.
• Investment control: Policyholders can customize their investment approach by selecting from multiple sub-account options.
• Multiple death benefit options: Level and increasing death benefit options provide design flexibility.

Cons of Brighthouse SmartCare

• Investment risk: Poor market performance can erode cash value and potentially require additional premium payments. This is the most significant trade-off compared to guaranteed products.
• Higher complexity: The combination of variable investments, insurance charges, LTC riders, and flexible premiums creates a product that is more complex than simpler hybrid alternatives. Policyholders need to understand and monitor their investments.
• Higher internal costs: VUL products carry investment management fees, mortality and expense charges, and administrative costs that can be higher than fixed products.
• Securities licensing required: Advisors must hold securities licenses to sell SmartCare, which can limit the number of advisors who offer the product and may affect the quality of guidance available.
• Lower financial strength ratings: While still solid, Brighthouse's ratings are below the top-tier carriers, which is worth considering for a product that may not pay benefits for decades.
• No guaranteed cash value growth: Unlike whole life-based products, there is no guarantee that the cash value will grow. In adverse market conditions, the cash value could actually decrease.
• Suitability concerns: Variable products are not appropriate for all consumers, particularly those who are risk-averse or who cannot afford additional premium payments if investments perform poorly.

Who Is Brighthouse SmartCare Best For?

Brighthouse SmartCare is best suited for a specific type of consumer:

• Investment-minded individuals: Those who are comfortable with market risk and want their insurance product to participate in potential investment gains.
• Higher-net-worth consumers: Individuals with sufficient assets to absorb potential investment losses and make additional premium payments if necessary, without jeopardizing their financial security.
• Tax-conscious planners: Those who value the tax-deferred growth within the VUL structure, particularly individuals in higher income tax brackets.
• Longer time horizons: Younger purchasers (in their 50s) who have more time to benefit from the investment component and recover from potential market downturns.
• Those who want both investment and insurance: Consumers looking for a single product that addresses long-term care protection, death benefit needs, and investment accumulation simultaneously.

Conversely, SmartCare may not be the best fit for conservative investors, those on fixed incomes who cannot tolerate premium variability, or individuals who prefer the certainty of guaranteed products. For these consumers, alternatives like MassMutual's CareChoice or OneAmerica's Asset-Care may be more appropriate.

Comparing Brighthouse SmartCare to Other Hybrid LTC Products

When evaluating SmartCare, it is helpful to compare it against other leading hybrid LTC products. Each carrier takes a different approach to combining life insurance with long-term care benefits:

• SmartCare vs. MoneyGuard III: Lincoln's MoneyGuard III uses fixed universal life, providing more predictable performance but less growth potential. MoneyGuard III's guaranteed benefit period is a strong feature that SmartCare's variable structure cannot easily match.
• SmartCare vs. CareChoice: MassMutual's whole life approach offers stronger guarantees and dividend potential, while SmartCare offers higher growth potential through variable investments.
• SmartCare vs. Asset-Care: OneAmerica's Asset-Care offers both annuity and life-based options with strong joint coverage for couples, a feature that SmartCare does not emphasize in the same way.
• SmartCare vs. John Hancock: John Hancock's hybrid products offer the unique Vitality wellness program and stronger financial ratings, while SmartCare offers the investment component that John Hancock's fixed UL products do not.

How to Get a Quote for Brighthouse SmartCare

If the investment component of Brighthouse SmartCare appeals to you and you are comfortable with the additional complexity and risk, we encourage you to request a personalized illustration. Our team of independent advisors can help you understand how SmartCare compares to other hybrid LTC options, run side-by-side illustrations, and determine whether the variable approach aligns with your overall financial plan. There is no cost or obligation to explore your options.