More Than One Way To Fund Long-Term Care

By Linda Koco
InsuranceNewsNet

Citing major shifts in the long-term care insurance marketplace, a big, multi-state long-term care insurance distributor says it is no longer focusing only on long-term care insurance.

Instead, LTC Financial Partners has begun nudging its captive and career agencies to use multiple ways to help clients pay for long term care.

It’s a modern-day version of the old saw about there being multiple ways to skin a cat. Only this time around, the firm is supporting multiple ways to fund long-term care needs.

Those multiple ways include not only traditional long-term care insurance but annuities and life insurance policies with long-term care riders, reverse mortgages, critical illness insurance, life settlements and even a pre-payment service contracts for home care hours, national sales director Mark Goldberg said in an interview.

The issue

The Kirkland, Wash., firm has long been a proponent of traditional long-term care insurance. But as the market has lost carriers, tightened underwriting and curtailed benefits, the firm began offering other solutions, too.

Now, the firm is going a step further and putting its multi-solution strategy into high gear. It announced this week that it is making “a bold shift from its traditional focus on long-term care insurance to a broad, balanced focus on multiple ways to pay for care.”

Goldberg said he was brought on board to help move that effort along. “Agents tend to gravitate to what they know and understand,” he said, “so they need some education on how the other options and their intricacies can apply to the need.”

That’s important, Goldberg said, because “demand for long-term care (funding) solutions continues to grow.” Meanwhile, the long-term care insurance industry is stagnant or dwindling, so long-term care agents need to look for additional solutions for their clients.

The long period of low interest rates has been a contributing factor to the insurance problems, he said, adding that low lapse rates, increasing technology and greater medical advances have been factors, too. In response, some carriers reduced exposure to risk associated with long-term care policies, while others left the business.

Those that stayed in the business did innovate with product designs in ways that have helped keep premiums affordable, at an average of $2,300 a year, Goldberg pointed out.  But the trade-off has been reduced coverage, tighter underwriting, gender-based pricing, increased premiums in certain categories, narrower issue age periods, and/or other changes that have essentially dampened sales despite continued need.

“When I started in the business in 1991-192,” Goldberg recalled, “the average age of the buyer was 69. Today, the average age is 57 in the individual market and 54 in the worksite market, and the average age keeps trending younger.

“As a result, you have to be healthy and you have to be able to afford it in order to buy it.”

Buying a standalone long-term care insurance policy is still superior to being self-insured, Goldberg emphasized.  But agents still need to look at other options for customers who can’t afford long-term care insurance or don’t want it.

“As an agent, you have to give customers something to address their needs.”

On the rise

Others are seeing LTCi alternatives on the rise, too. For example, 25 percent of 102 insurance and annuity executives surveyed in October by The Phoenix Companies predicted that “choice of combination benefits” will be “must have” features in annuities in the next 12 months. The “choice” terminology refers to combo annuities that include long-term care or chronic care benefits.

That percentage is more than double the 11 percent of executives who termed the products to be “must haves” during the preceding 12 months.

Also in October, Life Care Funding reported that five of the top 10 homecare companies in the United States are now using an alternative arrangement to help pay for care.

This alternative entails converting a life policy death benefit into a living benefit which can then be used to help pay for senior care. According to the company, this option is not long-term care insurance and it is not a policy loan. Rather, the life care benefit “is an irrevocable, FDIC insured benefit account that is administered to extend the time a person would remain private pay and delay their need to go onto Medicaid," Chris Orestis, Life Care Funding chief executive officer, said in a statement.

The trend is showing up in sales, too. For instance, the American Association for Long-Term Care Insurance reported that roughly 85,000 to 100,000 combination policies were sold in 2012; this is roughly 20 percent more than in 2011, executive director Jesse Slome said in an interview. (Most combo policies sold today are life insurance with long-term care riders, but some are life with chronic illness riders and a few are annuities with long-term care riders.)

Meanwhile, industry sales of traditional long-term care policies dropped to 322,000 from 337,000 the year before.

Like Goldberg, Slome sees the prolonged low interest rate environment a key factor in the product shift that is occurring. But another factor is that more carriers are offering alternative funding solutions.  As companies roll out new and alternative products, provide support, and train the agents, “the sales for those products go up,” he said.

The need for long-term care solutions is the same as before, Slome said. The change is that there are more types of solutions for agents to offer.

The number of policies sold has been holding steady at 350,000 to 400,000 a year for the past couple of years, he pointed out. “The number isn’t budging much because a lot of people can’t health qualify for the coverage or can’t afford it. Also, a lot of people are not planners, or they are not in the ‘right’ age group to buy the coverage — especially since some carriers are reducing the maximum age of purchase.”

However, Slome said, it is possible that some expansion is occurring among people who don’t like or don’t want the use-it-or-lose-it aspect of traditional long term care insurance, but who are interested in other types of solutions.

Some expansion

The federal government’s failure with implementation of the Affordable Care Act may be helping this trend along, he added. “It only increases consumer awareness that, ‘Hey, I better not plan on the government to taking care of me’ and that ‘I better plan for myself,’” he said.

Agent need to earn a living is a factor too, in the sense that agents now have more arrows in their quiver to offer to customers who resist the traditional long-term care insurance product. Agents always have had all kinds of solutions to offer, Slome allowed, but due to all the market changes, agents may have greater interest now.

According to Goldberg, the distributor, agents will be “solution specialists” in the long-term care marketplace that is emerging. “They won’t be product specialists. They will evaluate client needs and come up with the best option for each person, even if it is not individual long-term care insurance.”

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].