As the market for long-term-care insurance (LTCI) slows, the need for life insurance combination products appears to be increasing, giving agents an opportunity to provide their clients with the LTC coverage they need, according to Alison Salka, senior vice president and head of LIMRA Research.
LTCI sales remain low for a variety of reasons, Salka said. Many carriers underestimated the cost of the product, and claim losses exceeded expectations. This led to profitability issues that led a number of carriers to exit the market.
It’s still a tough market to price/underwrite, she said. Carriers with legacy products are still dealing with the financial impact of that business. The industry is more careful about the product and assumptions now.
Also, Salka added, people do tend to think that standalone coverage is expensive – and policies that have been in force for a while have become much more expensive because of premium increases. Even if new policy prices are lower, it’s going to be a hard sell to consumers because they may have seen polices of their parents or their parents’ friends become less affordable.
There are several options for long-term-care coverage, Salka said. During a financial-planning discussion, it’s important to find an LTC solution that fits the customer’s budget and to have a discussion about the potential financial impact of LTC needs.
As other states consider legislation similar to the Washington Cares Act, which established state-sponsored, long-term-care benefits to be funded by payroll tax, opportunities may arise for smaller, less expensive policies to meet exemption requirements or to supplement state coverage, she added.
Life combination products on the rise
In contrast to stand-alone LTCI products, life combination products appear to be on the increase. According to LIMRA’s 2021 U.S. Individual Life Combination Products Annual Review, total new premium for individual life combination products increased 22% to $4.3 billion, compared with prior- year results, and down slightly from the $4.8 billion in premium generated in 2019.
Combination products represented 20% of total life insurance premium in 2021. And LIMRA research showed that there were nearly 559,000 policies sold in 2021, up 37%, compared with 2020 results. In contrast to 2020, when sales were down slightly, recurring premium sales have shown an overwhelming amount of growth (39% increase in policies).
The appeal of life combination products
According to LIMRA research, 1 in 4 consumers are extremely or very likely to consider a life combination product when shopping for life insurance.
The top reasons they give for considering life combination products are:
The ability to choose whether they receive care at home or in a facility
Coverage for temporary illnesses/conditions
The ability to use benefits to pay for home modifications or equipment that helps them stay at home
Craig Roers, head of marketing with Newman Long Term Care, also noted the popularity of life combination products. In fact, according to Roers, these types of policies are among the fastest growing on the market. They are appealing to consumers for a number of reasons, he added. They blend LTCI with life insurance or an annuity to create resources for LTC, should they require care.
In addition, clients value the fact that these policies will pay out one way or another, and that their premiums are guaranteed. Many of the linked-benefit carriers have also had price reductions in the past year, making their pricing even more attractive, he added.
Basically, Roers said, the common structures for combination products are:
Linked Benefit LTCI (with extension of benefits)
Hybrid LTCI – Life insurance with LTC riders
Chronic Illness (CI) Acceleration rider
Serving the client’s needs
To best serve their clients’ needs, agents should start by trying to understand their goals and then work toward a solution, Roers added. “They don’t start with a solution and then try to make it fit. They know the pros and cons of various approaches,” he said.
Roers suggested that agents lead with advice, not a product and that, when possible, they work with a brokerage that offers a variety of carriers.
“These shops understand the differences between various solutions and can help steer you to the product type and carrier best suited to your clients’ health and needs,” he said.
Partner with an LTCI specialist who deals with these solutions every day and will do the client education and application for you.
Make it clear to the client what they are buying. Life options should not be sold just because an advisor is more comfortable with life insurance selling, or because
they’ve been frustrated by the underwriting process for traditional solutions. “Remember that it’s often the clients’ family who will come to you with questions on what you put in place for their loved ones,” he said.
Create an LTC decision tree to help you guide your clients in discovering the right solution for them. There is no one perfect solution for every client, Roers stressed. So, advisors should start by establishing the need for clients to plan for extended-care financing. “Only then should you consider their options to fund that plan,” he said.
Questions that help
Once clients have committed to creating their extended-care plan, advisors should ask their clients and prospects the following basic questions, added Roers:
What is your primary concern? Long-term care? Life insurance?
How healthy are you?
How would you fund care if you were to need it today? The following question may uncover ways to fund the premiums: Can you “1035 exchange” an old annuity or a life policy? Are there other “rainy day” funds being kept for “emergencies”?
How important are tax advantages to you? With traditional LTCI, the client may be able to deduct some or all of their premiums, especially business owners who are paying the premiums through the business entity. Some linked-benefit solutions now break out the costs of the LTCI portions of the contract, allowing for some of those premiums to be deducted, Roers said.
Is asset protection from an LTC partnership important to you? Then you should look to traditional LTCI.
Do you want shared care? Then you should look to traditional LTCI.
How long do you wish to pay premiums? Through a single pay or via accelerated payments? There are more of these features in combo or linked-benefit products, he said.
One of the biggest obstacles to the growth of LTCI sales is simply the lack of producers bringing up the topic, Roers said, adding, “The best way to grow the industry is to have more advisors proactively having these conversations.”
Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].