You can’t move against the winds of change. Stand-alone long-term care insurance (LTCi) is no longer the only form of protection consumers have against unexpected health care costs during retirement.
With their unique designs, non-traditional forms of LTCi coverage, like hybrid life and annuity LTCi plans and short-term care insurance plans, have taken the market by storm. Advisors looking to manage successful practices must present these products as reliable alternatives to traditional LTCi, taking care not to overlook the latter’s inherent value. Why?
Guaranteed Paid Benefits & Other Perks
Though they can be more expensive than traditional policies, non-traditional LTCi plans like hybrid life and annuity combination plans can guarantee something “use-it-or-lose-it” stand-alone LTCi plans don’t: paid benefits even if LTC coverage isn’t needed. Thirty-six percent of participants in Life Happens and LIMRA’s 2016 Insurance Barometer Study marked this unique pro as a reason why they’re interested in life/LTCi combo products.
Non-traditional LTCi plans can guarantee paid benefits even if LTC coverage isn’t needed.
Generally speaking, policyholders are not guaranteed a benefit with traditional LTCi. They could pay for a policy for years, and then never need the policy to pay out. With hybrid LTCi, policyowners can basically buy a special type of annuity or life insurance policy and then use the policy’s cash value or death benefit to pay for LTC expenses. If they end up not needing LTC or don’t need to use all of their policy’s funds to cover any care they do need, the remaining funds can go to their designated heirs when they pass.
Depending on the carrier and product, underwriting for hybrid LTCi plans may be streamlined, instead of full, which is also a common caveat associated with traditional LTCi. Additionally, with hybrid annuity/LTCi and life/LTCi policies, policyholders don’t have to worry about potential rate increases — something that keeps some prospective buyers from purchasing traditional LTCi.
Market Interest and Growth Potential
Non-traditional LTCi solutions present easy-to-understand, outside-the-box ways people can obtain extended care coverage. While different is not necessarily better, market research tells us consumers and carriers alike may be open to new LTCi options.
In 2017, LIMRA reported that, since 2012, stand-alone individual LTCi sales have dropped 60 percent. Conversely, research from this same organization shows that LTC combination product sales have been climbing over the last few years.
Market research tells us consumers and carriers alike may be open to new LTCi options.
Not only do hybrid LTCi products evidently appeal to consumers, but it seems they’ve piqued the interest of insurers as well. Milliman Inc. found that, in 2016, only 17 insurers were selling traditional policies, with two of the carriers doing around 50 percent the sales. LIMRA previously reported, at the end of 2016, around 20 carriers were already offering life combination products and five were offering annuity combination products. Whereas many carriers have packed their bags and left the traditional LTCi market, new carriers continue to enter the hybrid market and bring innovative plans to the table.
The Department of Health and Human Services estimates that 52 percent of individuals in the U.S. will need LTC services and support after they turn 65. However, in 2014, only 11 percent of adults ages 65 or older had LTC coverage, according to Urban Institute.
Now and into the future there should be a lot of potential for LTCi sales. By including non-traditional LTCi solutions in their portfolio, advisors will be able to present reliable and popular solutions to more individuals, and better help those who may not be able to qualify or afford a traditional plan.
Helping Those Who “Can’t” Be Helped
Imagine you have a client named Bob. Let’s say he’s either a healthy 84-year-old man or a 56-year-old man who’s had some health issues. He wants to purchase some form of financial protection against major unexpected health care costs in retirement. Can Bob purchase traditional LTCi in either scenario?
He can try, but his chances are slim to none. Traditional LTCi carriers typically only issue policies up to age 79 and can be difficult to qualify for if your clients have certain pre-existing conditions that make them ineligible for LTCi.
What if Bob is a healthy 65-year-old man, but he’s only able to spend a max of $45 every month on a plan? Or what if Bob’s healthy identical twin sister Barb is living on a similar budget and also wants coverage? Would a stand-alone LTCi policy be a good fit for either of them?
Those who may not be able to get an LTCi policy, may still be able to qualify for and afford a hybrid annuity/LTCi or STCi.
Probably not. Traditional LTCi rates are gender- and age-based. They can get expensive, especially for women and older seniors. We’re talking an average annual premium of $1,870 for a 55-year-old man and $2,965 for a 55-year-old woman, according to the American Association for Long-Term Care Insurance’s (AALTCI) 2018 National Long-Term Care Insurance Price Index.
Though Bob or Barb may not be able to get an LTCi policy, they may still be able to qualify for and afford a hybrid annuity/LTCi product or short-term care insurance (STCi). Hybrid annuity/LTCi policies tend to have less underwriting than life/LTCi hybrid and traditional LTCi plans. And while an STCi policy doesn’t offer individuals coverage for as long as an LTCi plan, it could still protect them from some of the costs of their care. The AALTCI reports approximately 4 in 10 LTCi claims last less than one year.
Keeping Traditional LTCi in Mind
While non-traditional LTCi products have become increasingly popular and may open the doors to coverage for more individuals, they shouldn’t replace stand-alone LTCi products altogether. It’s important to recognize traditional LTCi is not dead yet.
Rate hikes and carriers leaving the market have made people apprehensive of purchasing traditional LTCi. However, over the last few years, carriers have modified stand-alone policies to make their rates more sustainable over time, taking into consideration low lapse and interest rates and claims data. Additionally, when it comes down to which LTCi product provides consumers more for their money, the answer is often traditional LTCi.
It’s important to recognize traditional LTCi is not dead yet.
There’s a chance that someone could buy a traditional LTCi policy, pay thousands of dollars in premiums over several years, and never need the policy. Should that someone go with a non-traditional form of LTCi and get fewer LTC benefits? Maybe, but it really depends on what the individual can afford now and over time, their need or desire for (more) life coverage or guaranteed income, and if they view their risk of needing LTCi like they view their risk of needing cell phone, car, and house insurance.
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In the words of one LTC industry expert, “If we, the LTC brethren, continue to market the same way we have over the last 15, 20, 25 years and expect sales to change, we’re kidding ourselves.” If you’re looking to continue growing your LTC business, you can’t ignore which way the wind is blowing. You can keep your roots, but stay flexible.
A modified version of this article was previously published in the September 2018 issue of InsuranceNewsNet Magazine.