With a renewed push to sell short-term care insurance (STCi), it’s a good time to ask whether STCi is even worth selling.
Agents familiar with the process of selling STCi appear to be of two minds about the coverage, which typically lasts for a 360-day period or less.
For clients who don’t qualify for long-term care insurance (LTCi) and get turned down, STCi is a viable option on the grounds that some coverage is better than no coverage at all, said Barbara Stahlecker, national marketing director with Premier LTC Brokerage, a field marketing organization.
There’s much to recommend in the sale of an STCi policy.
Very few, if any, STCi policies have experienced price increases, the simplified underwriting process is easy and with premiums of less than $100 a month in many cases, any future rate increases on STCi policies are far more palatable than the rate hikes with which carriers have plastered consumers with LTCi policies.
“I am not aware of any STC policy that has experienced a price increase and, in fact, the carriers are very interested in selling much more,” Stahlecker said in a recent email to InsuranceNewsNet.
Preliminary estimates show that 2015 is heading for a record year of STCI sales, though from a very small base.
There were 26,237 STCi policies sold in the first six months of 2015, an increase of 71 percent compared with the year-ago period, according to the National Advisory Center for Short Term Care Information. The center created a new database dedicated to tracking STCi.
Why Hasn’t STCi Caught On?
Many agents, who have never seen the value in selling the coverage, object on the grounds that STCi doesn’t offer enough coverage. Other agents don’t understand the product or insist on writing only the coverage from A-rated carriers.
Why take out a 360-day policy if you qualify for a LTCi policy that pays out over a longer period for only a few dollars more?
“To be frank, I don't see the point in buying an insurance policy that has a policy limit of $36,000,” said long-term care insurance specialist Scott A. Olson. “For that to be of interest to someone, it's likely that person could qualify for Medicaid pretty easily.”
STCi also lacks the same protections against rate increases embedded in today’s LTCi policies, said Olson, co-founder of the website www.ltcshop.com in Yucaipa, Calif. In fact, he argues that STCi policies are poised for big rate increases because of outdated pricing models.
Stahlecker has been in the business of selling long and short-term care coverage for 32 years. Two or three years ago, there was a push by the industry to sell STCi after agents found their clients were being declined by long-term care carriers, she said.
The natural place to go was to ask LTCi agents to sell STCi, but all the industry got was pushback from agents unwilling to move beyond their comfort zone, said Stahlecker, based in Norfolk, Neb.
Marketing managers then turned to agents specializing in selling Medicare supplemental coverage to see if Medicare agents would be willing to sell STCi. They, too, turned out to be a bust for STCi sales.
“Also, when you're writing Medicare Supplements, there really is no ‘sales’ process,” she said. “Either the client needs a Med Supp or they don't. STCi needs to be 'sold’ and most Med Supp producers are just not that skilled at the sales process.”
A New Approach to Selling STCi
In retrospect, LTCi was underpriced. With lifetime benefits and a 5 percent compound cost of living rider, thousands of LTCi policies were sold far too cheaply and when it came time to pay claims in an environment of declining interest rates, many LTCi carriers fled the segment.
Carriers that remained in the market jacked up premiums leaving consumers skittish about buying LTCi and agents wary of selling it.
That has created a new opportunity for STCi.
But STCi marketing managers say they have no plans to hound agents to sell STCi. Instead, sales and marketing managers want to appeal directly to consumers and let consumers ask agents about STCi, Stahlecker said.
“We're going to go to the consumer and educate the consumer, who will then go to the agent and ask for it,” said Stahlecker, who belongs to a long-term care study group made up of 20 field marketing organizations.
At least that’s the plan for STCi. The trick is for agents to sell one or two STCi policies and then they are “hooked,” she said.
In a six-week period, one agent in Texas placed 16 clients who were declined for LTCi, into STCi, and the agent’s clients went from no coverage to having some short-term protection. The agent, meanwhile, walked away with $5,000 worth of commissions.
Traction around STCi is building, though perhaps not a quickly as some in the industry would like. “STCi is getting there,” Stahlecker said.
STCi a Chevy, LTCi a Cadillac
Nobody should confuse LTCi with STCi, however. Buying STCi compared to LTCi is like buying a Chevy truck compared to a Cadillac, STCi and LTCi experts said.
“These STCi policies are not a plan A. We are plan B. Let’s be clear about that,” Stahlecker said.
For a man or a woman age 65, a 360-day benefit of $100-per-day, or the equivalent of $36,000 for home care, assisted living or skilled nursing home costs, including hospice, will cost an average of $54 a month with a 30-day elimination period. That policy will cost $61 a month without an elimination period, according to data from the National Advisory Center for Short Term Care Information
Compare that to LTCi, which is a better buy, Olson said.
For about $70 per month per spouse, a 65-year-old married couple could each have an LTCi policy with a $3,000 monthly benefit for 25 months for a benefit total of $75,000 each—and that would include an offsetting zero-day elimination period for home care.
In the eyes of Olson, LTCi is a slam-dunk: Healthy couples who qualify should get the richer benefits available with LTCi.
There’s no dispute that for those who qualify, LTCi offers more value. But proponents of STCi say that’s the whole point: STCi fills a need to cover people who don’t qualify for LTCi, or where LTCi doesn’t pay.
A 90-day certification criteria, for example, requires a doctor to certify that the policyholder is expected to need care for more than 90 days for the LTCi policy to be effective. If recovery from an injury takes less than 90 days, the LTCi isn’t activated.
And remember that 30-day elimination period, which is separate from the certification criteria? The cost of the elimination period rises every year, which means that five years from now a month worth of care might cost $10,000 instead of the $5,000 it costs today.
So even if the client bought an STCi policy for 90 to 120 days, it could still end up saving them thousands of dollars eventually, proponents say.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].