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It Is Time To Acknowledge Standard LTCi Alternatives

You can’t move against the winds of change. Stand-alone long-term care insurance is no longer the only form of protection consumers have against unexpected health care costs during retirement.

With their unique designs, nontraditional forms of LTC coverage, such as hybrid life and annuity LTC plans and short-term care insurance plans, have taken the market by storm. Advisors must present these products as reliable alternatives to traditional LTCi, taking care not to overlook the latter’s inherent value. Why?


Guaranteed Paid Benefits And Other Perks

Although they can be more expensive than traditional policies, nontraditional LTC plans such as 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 advantage as a reason they’re interested in life/LTC combo products.

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 LTC, policy owners can 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 away.

Depending on the carrier and product, underwriting for hybrid LTC plans may be streamlined, instead of full, which is also a common caveat associated with traditional LTCi. Additionally, with hybrid annuity/LTC and life/LTC policies, policyholders don’t have to worry about potential rate increases — something that prevents some prospective buyers from purchasing traditional LTCi.


Market Interest And Growth Potential

Nontraditional LTC solutions present easy-to-understand, outside-the-box ways people can obtain extended care coverage. Although different is not necessarily better, market research tells us consumers and carriers alike may be open to new LTC options.

LIMRA reported in 2017 that stand-alone individual LTCi sales have dropped 60 percent since 2012. Conversely, research from this same organization shows that LTC combination product sales have been climbing over the last few years.

Not only do hybrid LTC products evidently appeal to consumers, but it seems they’ve piqued the interest of insurers as well. Milliman found that in 2016, only 17 insurers were selling traditional policies, with two of the carriers accounting for around 50 percent of the sales. LIMRA previously reported that at the end of 2016, about 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 U.S. 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 age 65 or older had LTC coverage, according to the Urban Institute.

The potential for LTCi sales is great. But by including nontraditional LTCi solutions in their portfolio, advisors will be able to present reliable and popular solutions to more individuals, and to better help those who may not be able to qualify for or afford a traditional LTCi 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 issue policies only up to age 79, and it can be difficult for clients to qualify for coverage if they have certain pre-existing conditions that make them ineligible for LTCi.

What if Bob is a healthy 65-year-old man, but he’s able to spend only a maximum of $45 monthly for 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?

Probably not. Traditional LTCi rates are gender-based and age-based. Premiums 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 2018 National Long-Term Care Insurance Price Index.

Although 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/LTC product or short-term care insurance. Hybrid annuity/LTC policies tend to have less underwriting than life/LTC hybrid and traditional LTCi plans. And although a short-term policy doesn’t offer individuals coverage for as long a period of time as an LTCi plan does, it could still protect them from some of the costs of their care. The AALTCI reports that approximately four in 10 LTCi claims last less than one year.


Traditional LTCi Is Not Dead!

Although nontraditional LTC 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!

Rate hikes and carriers leaving the market have made people apprehensive about 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 with more for their money, the answer is often traditional LTCi.

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 nontraditional 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 whether they view their risk of needing LTCi like they view their risk of needing cell phone, car or homeowners insurance.

In the words of one LTCi 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 LTCi business, you can’t ignore which way the wind is blowing. You can keep your roots, but stay flexible.


Roxanne Anderson is a senior copywriter at Ritter Insurance Marketing, Harrisburg, Pa., a national field marketing organization in the senior health and life insurance markets. Roxanne may be contacted at [email protected]

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