Long-term care insurance (LTC) has suffered a decimating blow in recent years. Stories of non-payment to policyholders, rising plan costs, and bankrupt carriers have plagued the industry, reducing its popularity as a part of a retirement strategy. In fact, Forbes reported that only 100,000 LTC policies were sold in 2016 even as 8,000 Americans turn 65 daily.
Despite its negative publicity and past failures, LTC still fills a need as Americans live longer and health care costs rise at unprecedented rates. LTC addresses a prevalent and challenging need in a way other investment products haven’t been able to.
Traditional health insurance and Medicaid do not cover the costs of long-term care associated with assisted living facilities and continuing care retirement communities, so insurance is often the only viable option to relieve the burden of these expenses. This is especially true for the middle class who often cannot afford self-coverage and do not qualify for federal assistance, but even this glaring need hasn’t been able to sustain sales of the unarguably flawed product. In an effort to revive long-term care, carriers like Genworth have created new ways to sell it. Packaging as a rider alongside traditional policies and offering new premium payment options, the effort is proving potentially effective in renewing the interest of policyholders and keeping extinction at bay.
Opinions about LTC among financial services professionals are varied but if you’re assessing whether the product deserves representation in your portfolio of services, understanding the product from all angles is a must. Here’s what you need to know:
Fact: Long-Term Care Protection Carries a Premium Price Tag
Long-term care insurance requires substantial funding that your customers might prefer allocating to other return-driven investments, returns that if managed appropriately can be used to cover long term care costs in the future. Annual policy costs currently range anywhere from $3,000 to $6,000, depending on age, sex, health status, length of coverage and daily reimbursement. Carriers continue to raise costs on both new and old policies, as detailed in a 2016 Time magazine article about LTC policyholders in New York and California who’ve recently faced up to 60 percent rate increases. In 2016, Pennsylvania fought to protect LTC customers from massive premium increases, but even as state-specific insurance commissioners and regulatory agencies like the National Association of Insurance Commissioners (NAIC) prioritize consumer protection, the cost of LTC remains a barrier to entry and/or policy continuation for many.
Tip: Analyze current and potential future costs, projected ROI and alternative investment options to finance health care in retirement before making a LTC recommendation to your clients.
Fact: Many Carriers Have Exited the Market
By underestimating the length of care for policyholders and overestimating returns, many carriers have lost significant revenue from sales of LTC. Bankrupt or losing money quickly, they exited the market, and according to the National Association of Insurance Commissioners’ State of Long-Term Care Insurance report, fewer than 20 insurers were actively selling stand-alone LTC policies in 2010. By 2012, that number dropped to 11. Financial professionals and advisors must be careful when recommending a LTC provider, analyzing its present and future stability.
Tip: Reviewing past records is important to determine the longevity and health of companies, including their ability to to pay out policy benefits.
Fact: Policy Purchases Are Down
High premium costs are prompting many policyholders to reduce coverage or pull out altogether. Policies have been in rapid decline since the early 2000s. In his written testimony before the Subcommittee on Government Operations of the Committee on Oversight and Government Reform, Marc A. Cohen, a clinical professor of gerontology at t University of Massachusetts in Boston, said that fewer people are purchasing LTC policies than two decades ago, with fewer than 8 million people – having this insurance protection. The mass exodus and decline are no coincidence and directly correlated to the inadequate or incomplete coverage even policies with significantly increased premiums provide. But while LTC as it was originally designed and sold may be inherently flawed, many retirees still need protection against the exorbitant long term care and health costs they’ll likely face.
Tip: Consider weighing the pros and cons on a case by case basis rather than making a blanket decision about long term care insurance.
Fact: Growing Need for Long Term Care Insurance
However bleak the past, the need for LTC protection cannot be ignored. The U.S. Department of Health and Human Services anticipates that 70 percent of people turning 65 will need some form of long-term care. But the out-of-pocket expenses associated with this care are high, justifying the conversation for insurance. According to a survey conducted by long term care carrier Genworth Financial, the annual 2014 median rate for an assisted living facility in Pennsylvania was almost $40,000 and the annual cost for a private room in a nursing home was over $107,000. The survey reported an anticipated rate increase of 4.29 percent by 2019.
Even clients who have made saving for retirement a priority will be rendered vulnerable to the costs associated with home health care, assisted living facilities and nursing homes. Should a need for long-term care arise earlier than planned, savings meant to sustain a projected 20- to 30-year retirement could be decimated. Crafting a retirement income solution that considers the harmful effects of long term care costs and how to combat them is not only prudent, but also necessary. Education about investment and protection options is essential to make the right recommendation.
Tip: Advanced financial designations like the Retirement Income Certified Professional® (RICP®) and the Chartered Life Underwriter® (CLU® ) from The American College of Financial Services develop skills and expertise that will help you confidently advise your clients.
Fact: New Ideas Mean New Opportunities
In an effort to breathe life back into the industry, many LTC insurance providers are revamping their products. Decreased levels of inflation protection, more relaxed qualifying requirements, adjusted benefit payout options and even the ability to downgrade an established policy are some of the new ways carriers are trying to cater to everyone from younger investors to those who have an immediate need for a LTC benefit. Some carriers are piloting new offerings like short-term care and lifetime coverage, and in 2015, “combo” products that combine traditional life insurance or annuities with a LTC rider almost outsold traditional LTC policies. Some would argue long-term care is on the brink of a revival, and for financial services professionals debating how or if they’ll guide clients toward LTC, the cornucopia of recent changes demands incredibly thorough due diligence.
Tip: Increased diversity among policy types and features means new opportunity to create a custom LTC insurance solution for your clients. Don’t make (or decide not to make) a LTC recommendation until you’ve researched all available options. Only then can you determine the potential value of adding this resource to a client’s retirement income plan.
Long-term care can be a valuable component of a sustainable retirement income strategy but it’s only one aspect of a comprehensive plan.
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