The Advisor's View of Long-Term Care Planning

Highlights from the 2014 Broker World LTC Insurance survey

Each year, Broker World Magazine publishes a survey of LTC Insurance- if you are an advisor it is well worth checking out, as almost every significant LTC carrier participates in the survey and leading actuaries

Highlights (U.S. stand-alone LTCI market):

• Claims – the industry incurred $7.7 billion in claims in 2012… over $81.2 billion since 1991.  People are getting significant value from policies.
• Sales – industry sales were down from 2012, although demand is high.  Informal caregiver services were valued at $450 billion per year in 2009 - up from $375 billion in 2007.  In addition, more advisors and their clients are beginning to hedge LTC risk (lower benefits) vs. total risk transfer (higher maximums).
• Carriers – currently 16 carriers offer stand-alone LTCI solutions (compared to 45 in 2008).  LTCI Partners is aligned with 5/6 top carriers (ranked by annual premium). 
• Buyer Characteristics –
  • 
    Average issue age - 56.8
  • Target market – 74.1% of buyers are betweenage 45-64
  • Average monthly maximum benefit - $4,830
  • Compound inflation – sales of 5% compound finally dropped.  There’s a higher chance of a significant rate increase with 5% compound (due to interest rate sensitivity - carriers who guarantee 5% growth when they earn less than 3% on their 10-year treasuries).  Not to mention 5% compound almost doubles the premium from a 3% factor with many carriers.  We’re starting to see more policies with lower compounding rates or a deferred/future purchase option.
  • Shared Care Rider – about 40% of couples opted to buy the shared care rider.  This rider has become increasingly popular with the lifetime benefit practically disappearing.

The survey also includes a comparison of carrier products. Click here to download the full survey.

How much for a million dollars of LTC Coverage?

With Genworth introducing their latest LTC product this month (Flex 3), it means that almost every major carrier now has new, refreshed pricing with the most conservative actuarial assumptions. 

Based on that, what does it cost to get approximately $1,000,000 of shared LTC benefit for a couple?  Let's look at four of the leading carriers to see what their premiums are for a shared benefit plan of about $1,000,000.  These premiums are based on $300/day, 5 year benefit period, 90 day elimination period, shared benefit riders, and the most commonly issued underwriting class.

First, here are combined couples' annual premiums with 3% automatic compound inflation rider:

 

Age	Carrier 1 ($547K of benefit each partner)	Carrier 2 ($547K of benefit each partner)	Carrier 3 ($547K of benefit each partner)	Carrier 4 ($500K of benefit each partner)
40	$6,284	$5,812	$7,022	$7,598
50	$7,944	$7,709	$8,524	$9,154
60	$11,128	$10,362	$11,019	$11,739

 And here are combined couples' annual premiums with either no automatic inflation or guaranteed purchase options

Age	Carrier 1 ($547K of benefit each partner)	Carrier 2 ($547K of benefit each partner)	Carrier 3 ($547K of benefit each partner)	Carrier 4 ($500K of benefit each partner)
40	$5,264	$2,809	$3,188	$3,432
50	$5,458	$3,893	$4,089	$4,140
60	$7,070	$6,318	$6,561	$6,055

What do you think?  Buy automatic inflation or go with a guaranteed purchase option? Feel free to comment below.

Of course, with the average premium purchased for long-term care insurance being $5,000 per couple annually, a better comparison might be "how big a pool of money can you get for $5,000?"  That comparison will be coming up next week on this blog.

 

LTCI Partners Monthly Poll, July 2014

BACKGROUND: For one reason or another, some clients are reluctant to purchase long-term care coverage. Check out our “overcoming client objections”  piece to prepare for questions that might arise in a discussion with your clients.

Why Genworth's new marketing push is great news for LTC planning

Building awareness for LTC planning is hard!  Consumer awareness campaigns are expensive and take a big committment. 

Some of the longest lasting attempts have been through the government (www.longtermcare.gov), a non-profit organization (www.lifehappens.org), and producer funded marketing organizations such as www.AALTCI.org.

However, those efforts suffer from a lack of money to make a big splash.  On the other hand, a company like Genworth can devote resources to have an impact on the product.  As a market leader they will directly benefit by new product sales.

The campaign includes radio advertisements in local markets and appearences at big events such as the Taste of Chicago.

Check out their latest campaign which is found at https://www.genworth.com/lets-talk

An easier way to explain calendar day versus service day elimination periods

 When people buy long-term care insurance, one critical policy feature is whether a policy has service day or calendar day elimination period.  Often the difference can be confusing to explain, but showing the difference might help.  Genworth has created an image showing the difference between fulfilling a 30-day calendar day elminination period and a 30-day service day elimination period.

By the way, is "waiting period" a better name than "elimination period"?

Why owning multiple LTC policies might make sense for some

When standalone LTC insurance got its big start in the late 1980's, it was often distributed by advisors who were used to working in the "senior" marketplace through Medicare supplement plans.  Because of that, early LTC regulations focused on market conduct problems that occured in the Medicare marketplace - such as selling multiple plans on one person or replacement and churning issues.

Luckily, the regulators' fears were unfounded.  LTC insurance became a popular product distributed not just through LTC specialists but also through financial planners who were looking to protect the assets of higher income Americans.  Products sold through 2009 tended to be polices with high benefit limits, including 5% compound coverage and lifetime benefit periods.

How much should an LTC buyer pay for the option to have cash benefits?

Standalone LTC insurance products have a lot in common nowadays - they cover care at home or in a care facility, they have similar benefit triggers, and use roughly the same underwriting.  The actuarial assumptions are also similar among carriers - low interest rate returns for carriers reserves and low lapse rates for policyholders.

That being said, there are still some premium differences. 

Let's take a look at plans from two leading carriers with their third generation products - let's call them "GIII" and "TIII".  Here are the combined annual premiums for a mass-affluent 60-year-old couple, preferred health rates, $4,500 of monthly benefits, 3% compound benefit increase option, 90-day elimination period and a $162,000 benefit pool:

"GIII" : $3,549.00             "TIII" : $3,803.02

So why the difference?  Since these are the latest plans, shouldn't the premiums be closer?  One clue might be in the home care benefits available.  The newest plan from carrier "G" offers a home care benefit that requires use of a licensed home health care agency - with no independent care provider reimbursement (except for certain rural policyholders).

On the other hand, carrier "T" offers an alternate cash benefit - the option to get a check for 10x the daily benefit on a monthly basis, regardless of who is providing care (including family members).  In the example above, that would be a $1,500 cash check each month.

Of course, both home care benefits are pursuant to a plan of care.  All other things being equal, the ability to access that alternate cash benefit is surely worth something, but how much would you pay?  Would you pay the annual $250 premium difference?

 

New LTC marketing strategies simplify number of choices for middle-class consumers - will they work?

Based on recent sales results, the traditional way of selling LTC insurance (direct mail, face-to-face sales, customized plan designs that require a specialist to explain) is not working.  Research shows that the current LTC consumer is very price sensitive and  does research online.  The research is not to find an agent - but to learn more about plans quickly.  

Today's internet buyer is accustomed to "subscription models" in which they pay a monthly fee for services -   look at how health insurance is now packaged with Gold, Silver, and Bronze plans. 

With that in mind, carriers and distributors are changing the way they are bringing LTC insurance to the market.  One way that people are very familiar with is  the "good - better - best" approach that offers three plan choices.  As Jesse Slome of the AALTCI recently discussed at the producers summit, many products or services offer this marketing strategy as shown below:

( BTW, you can view the complete presentation with audio along with 5 other sessions from the meeting at this link - price is $9 for a year)

From gas stations to car washes, health insurance to cable TV, people are accustomed to deciding what to buy this way.  With that thought, the people at Transamerica LTC have come up with Transamerica Secure. Transamerica Secure is based on the their current product but just packaged differently, and includes a consumer website at www.tasecure.com .   Here is a snapshot of the product:

And here are some rates estimates:

The decision can be driven by a coming up with a reasonable premium amount.  For example, a 55-year-old couple can select the 100 plan and therefore get access to $200,000 of LTC coverage for about $250 per month.

 

Three things that standalone LTC Insurance could learn from Life with LTC rider plans

There has been a lot of growth in the life with LTC insurance rider sales while stand alone LTC sales have been flat.  Here are three things that have been successful with life/LTC sales that may help stand alone sales:

1. Bigger Initial Daily and Monthly Benefits.  Although many life/LTC plans offer an automatic inflation rider, often coverage is simply a percentage of the death benefit, paying out a $500,000 death benefit over 25 months (a $20,000 monthly benefit.)  In many cases, it can make more sense to buy a very high monthly benefit than pay for 3 or 5% compound inflation in a stand alone policy.
2. Calculating the benefit as a "pool of money" instead of "years of care."  Another way the life/LTC plans position the LTC benefit is as a pool of money.  Some standalone LTC plans still require a calculation of that pool by multiplying a years of care figure by the monthly or daily benefit amount, an unncessary and confusing step.  Would you rather have access to a $250,000 pool of money or have a plan that pays $230 per day for 3 years?  $250K sounds more impressive.
3. Avoiding the "use it or lose it" argument.  Life plans with LTC riders, of course, will pay the full death benefit if you die without using your LTC accelerated benefit.  However, did you know you can add a life rider to an LTC policy?  The name carriers use for this feature, of course, is return of premium. 

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