Has The Time Come For Short-Term Care Insurance?

By Cyril Tuohy

Nearly all insurance professionals are familiar with long-term care insurance, especially in regard to the rising cost of nursing homes and assisted living.

But what about short-term care? Chances are that even among agents who have heard of the coverage, not that many have sold it.

That’s partly because short-term care insurance (STCI) coverage makes up such a small sliver of the market and only a handful of carriers even sell it.

Short-term coverage is designed to protect policyholders for less than a year. Advisors use the policies as part of retirement planning.

There were 26,237 short-term care policies sold in the first six months of this year, an increase of 71 percent from the estimated 15,362 short-term care policies sold in the first half of last year, according to the National Advisory Center for Short Term Care Information.

STCI premiums jumped 54 percent in the first half of this year compared with the year-ago period. The American Association for Long-Term Care Insurance (AALTCI) declined to release raw numbers from the survey, which gathered data from nine carriers that sell STCI and represent the majority of STCI policy sales.

The AALTCI sponsors the National Advisory Center for Short Term Care Information.

By contrast, 8.1 million Americans are protected with long-term care insurance (LTCi) and 322,000 new Americans obtained long-term care insurance in 2012, according to AALTCI data.

It is the first time that the industry has released the STCI data, said Jesse Slome, AALTCI executive director.

STCI isn’t a new category, but the products “have flown under the radar for many years and our goal is to create heightened awareness among consumers,” Slome said.

Indeed, there are so few agents selling STCI that a query sent to agents and financial planners seeking an interview met with no response.

Clients who buy STCI usually become eligible for benefits when they need assistance performing two or more activities of daily living.

Policies typically provide about $140 per day to pay for services, and serve as a convenient stopgap to cover the 90-day period before an LTCi policy kicks in, write William H. Byrnes and Robert Bloink of the Texas A&M School of Law, in an article published last year.

Many applicants, who might get turned down by an LTCi carrier, may qualify for STCI through simplified underwriting. For agents who have gone through the trouble of applying for LTCi for a client, only to get turned down, STCI offers some sort of saving grace, Slome said.

STCI fills in gaps where primary coverage may fall short, but is STCI really worth it?

Critics say they amount to little more than a “feel good” way for people to believe they are covered.

Consider the math.

A 2013 article on Forbes.com uses the example of a 63-year-old policyholder who collects $140 a day in benefits for 220 days, or just under four months, for $30,800 in STCI benefits.

The policyholder would have to pay $15,000 in premium, or $750 a year for 20 years, assuming a claim is submitted when the policyholder is 83 years old.

A payment of $140 a day isn’t enough to pay for nursing home care so the policyholder would have to dip into savings to fill the gap until the LTCi policy kicks in. For policyholders with enough in savings, the policy might make sense.

For insurance agents in search of more policies to sell in an era of low interest rates and depressed LTCi sales, STCI provides another product category to offer clients.

STCI fits today because anywhere from 25 percent to 40 percent of LTCi applicants are declined, and because Medicare imposes coverage limits that people may not be aware of until it’s too late, Slome said.

“It’s a plan-B option,” Slome said in an interview with InsuranceNewsNet. “If you don’t qualify or are declined for LTCi, some STCI coverage is better than no coverage.”

Depending on the policy, STCI covers the cost of a skilled nursing home, home care services, physical therapy and assisted living.

Of the nine insurers participating in the survey, seven had policies that covered skilled nursing home care, eight covered home health care and six provided benefits for assisted living, Slome also said.

STCI products, also known as recovery care policies, are not available in California, Minnesota, Florida, New York, New Hampshire, Vermont, Massachusetts and Connecticut.

Since insurance companies don’t sell STCI directly, consumers looking for STCI coverage need to refer to a general agency, or the AALTCI will pass their names on to agencies that specialize in the sale of short-term care products, Slome said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].