Helping consumers understand long-term care insurance

The U.S. population aged 65 or older is expected to grow by more than 8.3 million from 2022 to 2027, Oxford Economics reports. A study by the U.S. Department of Health and Human Services reveals that about 70% of Americans who reach age 65 will need some long-term care during their remaining years. With this aging population, it’s critical that clients understand what long-term care insurance is and how it works.

Many consumers mistakenly think their health insurance or Medicaid will cover various aspects of LTC services when that might not be the case. Medicaid coverages, for instance, are limited to certain services and times, vary state to state, and may require consumers to limit their assets to qualify. Such misconceptions could cost consumers who have not adequately prepared for long-term care.

November is National Long-Term Care Awareness Month, a national conversation on long-term planning in the event that individuals need support with daily living. Long-term care involves services, both medical and nonmedical, provided to people who cannot perform basic activities of daily living such as dressing or bathing. People receive long-term support and services at home, in the community or in a facility.

Market trends in the LTC solutions market

A decade ago, traditional long-term care policies were the predominant product in the market, making up 75% of the long-term care solutions sold. These products work much like policies for auto or home insurance: Consumers pay premiums, usually for as long as the policy is in effect, and make claims if they ever need the covered services. 

Although traditional stand-alone long-term care insurance products are an option, there are few companies still selling stand-alone LTCi. As a result, sales have dropped precipitously, going from $4.86 million in 2012 to $4.6 million in 2017. LIMRA estimates that approximately 4.26 million individual LTCi policies were in force at the end of 2022, a decline of 2% compared with 2021.  

The majority of long-term care policies sold today combine coverage for long-term care with another benefit, usually life insurance. These are known as hybrid or linked-benefit policies. Products that combine life insurance with long-term care or chronic illness coverage are offered by more companies and have seen stronger growth in recent years than stand-alone LTCi. In 2022, LIMRA research showed these products represented 20% of life insurance sales based on total premium. 

Linked benefit or hybrid life/long-term care products provide the most robust long-term care coverage. These products are true hybrids where the long-term care coverage is included in the base life coverage as opposed to an acceleration rider. They offer acceleration of the full death benefit for long-term care and extension riders that will double the payout. 

Earlier LIMRA research shows consumers considering combination products were attracted to the product’s affordability and the fact that regardless of whether they needed long-term care services or not, they or their family would benefit from the policy. 

Other options include life products with long-term care or chronic illness riders. Both riders accelerate at least a portion of the death benefit when the insured is unable to perform at least two of six activities of daily living, or ADLs, or is diagnosed with a chronic illness. Today, products with these riders make up 86% of LTCi products sold. 

Long-term care planning can reduce a lot of financial stress for seniors and their families. As the population ages, consumers will need long-term care services. Financial professionals and insurance companies can play a role in helping them plan for the funding. 

This month, let’s raise awareness about the significant risk of needing long-term care in retirement and help Americans develop a holistic financial plan that includes a strategy to address the potential costs of long-term care services.

Karen Terry is assistant vice president, insurance product research, LIMRA. She may be contacted at [email protected].