New Ideas for Cov­er­ing Care

Sales of long-term care in­sur­ance poli­cies have plunged in re­cent years. Here’s how ad­vi­sors are re­plac­ing them.

Financial Planning - - CONTENT - By Don­ald Jay Korn

Sales of long-term care in­sur­ance poli­cies have plunged in re­cent years. Here’s how ad­vi­sors are re­plac­ing them.

LONG-TERM CARE IN­SUR­ANCE MAY BE GO­ING OUT OF fash­ion, but long-term care cov­er­age? That’s a dif­fer­ent story.

While sales of tra­di­tional LTC poli­cies have fallen sharply in re­cent years, life in­sur­ance poli­cies and an­nu­ities that carry LTC ben­e­fits are surg­ing in pop­u­lar­ity.

“Many peo­ple don’t want to use the tra­di­tional LTC ap­proach,” says Randy Becker, a plan­ner and owner of Becker Re­tire­ment Group in Belle­vue, Wash­ing­ton. “They’re con­cerned about ris­ing pre­mi­ums, the risk of a com­pany fail­ing or the pos­si­bil­ity of not need­ing the care … all at a time when they will have lim­ited re­sources.”

Sales of new stand-alone in­di­vid­ual LTC poli­cies fell to 91,000 in 2016 from 372,000 in 2004, ac­cord­ing to LIMRA. Over that same time pe­riod, new pre­mium dol­lars fell to $228 mil­lion from $716 mil­lion. From 2012 to 2016, the drop in both cat­e­gories was par­tic­u­larly steep: over 65%. And in the first half of 2017, only 34,000 Amer­i­cans bought new LTCI poli­cies, down 30% from the first half of 2016.


In­stead, Amer­i­cans are turn­ing to hy­brid, or combo, life in­sur­ance that can also pay for life­time care. To a lesser ex­tent, they’re also buy­ing an­nu­ities that of­fer siz­able pay­outs, if nec­es­sary, for long-term care. New pre­mi­ums for com­bi­na­tion life-ltc in­sur­ance rose to $3.6 bil­lion last year from $2.4 bil­lion in 2012, ac­cord­ing to LIMRA. An­nu­ity-ltc hy­brids more than dou­bled in sales, to $480 mil­lion from $210 mil­lion.

Why the rush to LTC com­bos? “Some clients are con­cerned about pay­ing for stand-alone LTC in­sur­ance and not us­ing it,” says Herb

Daroff, an ad­vi­sor with Baystate Fi­nan­cial Plan­ning in Bos­ton. “Peo­ple don’t hope to get sick to use their health in­sur­ance, but LTC in­sur­ance has high pre­mi­ums, and the con­cern ex­ists.”

As LTC in­sur­ance pre­mi­ums have risen, many peo­ple lack en­thu­si­asm for pay­ing thou­sands of dol­lars, year after year, for cov­er­age that might yield no ben­e­fit. “There is ab­so­lutely no acceptance of tra­di­tional long-term care in­sur­ance,” says Jean­nette Ba­jalia, pres­i­dent and prin­ci­pal ad­vi­sor of Pet­ros Es­tate & Re­tire­ment Plan­ning in Jack­sonville, Florida. “The life­time pre­mium out­lay is not pre­dictable, and the cost may not be af­ford­able.”

Jaime Cow­per, pres­i­dent of Unity Fi­nan­cial Ad­vi­sors in Bing­ham Farms, Michi­gan, re­ports that she has be­gun to rec­om­mend life-ltc com­bos and an­nu­ity-ltc com­bos to clients more of­ten than she does tra­di­tional LTC in­sur­ance.


“The main rea­sons are that as­set-care prod­ucts” — Cow­per’s term for the hy­brid life poli­cies and an­nu­ities — “have guar­an­teed pre­mi­ums, of­fer life­time ben­e­fits and pro­vide for money for ben­e­fi­cia­ries if a client never needs LTC,” she says. “Although a tra­di­tional pol­icy ini­tially may be a lit­tle less ex­pen­sive than the as­set-care prod­ucts, there is no guar­an­tee that the pre­mium will not go up in the fu­ture and be­come sig­nif­i­cantly more ex­pen­sive, This, along with the op­tion for life­time ben­e­fits and the abil­ity to lever­age money to ben­e­fi­cia­ries if clients never need it, has made as­set care very at­trac­tive.”

Sim­i­larly, Becker refers to LTC hy­brids he em­ploys as “as­set-based LTC.”

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