This Month:
Actuary evaluates independent review process for long term care claims
LTCi claims issues: State regulators providing leadership
Don't be misled by LTCi claims statistics
The cost of long term care: The message behind the numbers
Group LTCi demands 'needs based' marketing
Three step primer; 'one of a kind' benefit: LTCi and the small business market
LTCi's youth movement: Average age for LTCi purchase continues downward trend
Today's LTCi: Protecting income against health care costs
Market trends drive product innovation
Good partners: LTCi accessibility on the rise
LTCI premium increases: The good, the bad, and the ... reality
Yes, you can self insure your long term care



LTCi NOTES AND NEWS

Actuary evaluates independent review process for long term care claims

by Claude Thau

Claude Thau is a Long Term Care consultant located in Overland Park, KS. He can be reached cthau@targetins.com.

Part III in a three part series

The first article of this series (www.lifehealth.com/ltci), discussed statistical confusion regarding the percentage of LTCi claims that are paid. Last month's article (www.lifehealth.com/ltci), explained several positive steps regulators are taking, such as the independent review process, to increase people's confidence in the claims process and assure that claims are properly paid. This article provides an actuary's evaluation of the independent review process, or ìexternal reviewî, analyzing cost/benefit trade-offs for the industry and consumers.

Actuaries have to project many factors, but as this article deals with independent review, it focuses only on claims and claims-handling expenses. Actuaries must:

  • Anticipate the amount and timing of claim payments and the related expenses the insurer will incur to determine appropriate premiums when pricing a product.
  • Project the amount and timing of future claims and claims-related expenses in determining, at a later date, whether it is necessary to increase prices for in-force business.
  • Assure that reserves are sufficient to cover claims and related expenses in reporting earnings and projecting solvency.
  • Predict cash flows (which are affected by claims and expenses) accurately in advising as it relates to investment policy or providing data for the insurer's investment managers.
  • Forecast expenses and future premium flow and claims on in-force policies and on future sales to project future profit.

    • Increased claims harm profits in two ways: reducing premium revenue, due to waiver of premium provisions, and increasing benefits paid. Insurers and insured clients rely on actuaries to perform their jobs well so that prices are appropriate, price increases are minimized, and the insurer's ability to pay claims is assured. Thus an actuary's perspective regarding the impact of independent review may be of interest to all parties.

    The percentage of claims that enter the independent review process, and the cost thereof, depend upon many factors. Some factors are under the insurer's control, others are not. By having expert claim adjudicators, a thorough claim process and quality internal review, the insurer can reduce the percentage of claims that go to independent review, as well as those that get overturned by the independent review organization (IRO). An insurer might also become more aggressive in paying questionable claims.

    Factors not under the insurer's control include the nature of the independent review process; how expensive it is, who bears the costs, whether independent review is binding on the insurer and claimants, the cost charged by the IRO, and whether claimants can maliciously take insurers to independent review repeatedly. It also includes possible consumerist bias in the process; possible increase in claims submitted due to the existence of independent review; possible increase in claims denied due to lack of societal integrity; and potential obstacles to identifying and contesting fraud.

    Based on the insurer's processes, the independent review process and expectations about the future, actuaries can project the potential cost of independent review. Several actuaries and other people helped set some of the assumptions for the following calculations.

  • If independent review appropriately overturns declines, the actuary should have originally anticipated that the claims would be paid. Thus only inappropriately overturned claims should add claims cost. If one percent of claims go to independent review and 25 percent of those claims are inappropriately overturned, premiums would increase 0.25 percent to offset the additional inappropriate claim payments, assuming that inappropriate claims have the same average size as appropriate claims.
  • To avoid independent review, an insurer might decide to pay an occasional claim that would normally be denied. Such claims would likely be much smaller than average. If one of every 400 claims were to be paid in such fashion and such claims were one third the size of a normal claim, premiums would increase 0.08 percent.
  • The insurer would pay the IRO and incur staff cost communicating with the IRO. If these respective costs were $600 and $200, and the average claim was $60,000, premiums would increase only by 0.01 percent to cover the cost of independent review for one percent of submitted claims.
  • Some insureds might submit questionable claims, hoping the independent review process might support them. Assuming they don't win, the added claims processing costs would increase premium by roughly 0.03 percent.

    • The analysis suggests that premiums would increase roughly 3/8 of one percent due to the costs of independent review. That is, a premium of $2000 would increase to roughly $2007.50.

    Being trained to examine issues from many different perspectives, actuaries also must consider aspects of the independent review process that may mitigate that small premium increase. While many actuaries doubt that independent review will increase sales, public perception resulting from media reports citing claims problems has negatively impacted sales. Broker responses to a survey I did last year suggest that they would sell more policies if independent review were available. The survey presumed that any denial could be contested in such fashion. Because independent review does not apply to all denials, any boost to sales will be much smaller. Furthermore, such survey questions are prone to overstate increased sales. Nonetheless, independent review should increase sales to a small degree as a result of greater financial advisor, broker and consumer confidence.

    If the insurer's fixed overhead expenses contribute three percent to the cost of the LTCi, a one percent increase in sales due to independent review environment would lower premiums by about 0.03 percent.

    Independent review might also avoid some lawsuits and inquiries from regulatory and legislative bodies. Claimants are less likely to sue if an independent review organization rules against them and attorneys are much less likely to accept a case if independent review upheld the insurer's claim denial. Such small savings are real, but hard to estimate.

    The bottom line is that independent review might cause a minor increase in premiums but everyone would gain from the presence of independent review.

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    LTCi claims issues: State regulators providing leadership

    by Claude Thau

    Claude Thau a Long Term Care consultant located in Overland Park, KS. He can be reached cthau@targetins.com

    Part II in a three part series

    The first article of this LTCi series discussed statistical confusion regarding the percentage of LTCi claims that are paid (LIFE&Health Advisor March 2009 - www.lifehealth.com/ltci). The article presented a simple example in which one insured's claim was paid and another insured's claim was denied. Seventy-five percent of the people surveyed on this example concluded that 50 percent of claims were paid. Yet, National Association of Insurance Commissioners (NAIC) reporting methodology results in a 97.3 percent paid statistic, and a reporting technique used by California concludes that zero percent of the claims were paid for the same example. State regulators are addressing that issue and also taking additional positive steps to increase people's confidence in the claims process and assure that claims are properly paid. These steps include: prompt payment of claims; internal appeal; independent review, and establishing consistent, meaningful claims statistics.

    Prompt Payment of Claims

    Draft changes to the NAIC's Long Term Care Insurance Model Act would require insurers to process claims within 30 business days of receiving those claims, either paying or denying those claims, or requesting additional necessary claim information. Insurers would pay interest, at a rate of one percent per month, on the unpaid due amount if the claim was not paid within 45 business days of receiving the necessary information.

    Internal Appeal

    This proposed process allows claimants to appeal if the insurer has concluded that the insured has not satisfied the "triggers" which would warrant LTCi payments. For tax-qualified insurance policies, these triggers are the need for help with two or more defined activities of daily living for 90 or more days, or the need for substantial assistance due to cognitive impairment. Very old or non-tax-qualified LTCi policies may have different triggers, perhaps including "medically-necessary" wording.

    Each insurer would be required to establish an internal appeal process for claimants who were not considered to have satisfied the triggers. They would have to notify such claimants that they have a 120-day window to request internal appeal. Insurers would also need to notify those claimants that if they are not satisfied with the internal appeal results, they have a right to independent review. If the claimant provides additional information during the internal appeal process, the insurer must respond in timely fashion.

    Independent Review

    The independent review process is the most significant proposed change. Iowa deserves credit for taking the lead with respect to independent review, as their process became effective January of this year. Iowa law (section 514G.110) gives claimants a 60-day window to write to the insurance commissioner to request independent review if they were not satisfied by the internal appeal process. The right does not apply to LTCi claims under a group LTCi certificate subject to the Employee Retirement Income Security Act (ERISA). The claimant pays a $25 independent review filing fee which can be waived by the state (e.g., for hardship) and is refunded if the insurer's denial is overturned.

    The state insurance departments have staff capable of reviewing interpretations of contract language but need access to independent review professionals to evaluate someone's health status. Therefore, the only issue subject to independent review is denial based on failure to meet the triggers.

    If Iowa's insurance commissioner determines that independent review is appropriate, the insurer can appeal the commissioner's decision. When independent review is required, the insurer has three days to select an independent review organization (IRO) from a list maintained by the state. The insurer notifies the claimant. Code 514G.110 lists the requirements for being an IRO. The claimant can object to the selection and can send additional claim information to the insurer and IRO.

    Within 15 days, the insurer must provide the IRO with everything received from the claimant and any other documents relevant to the denied claim. The IRO then has 30 days to make a decision. All costs, except the $25 filing fee, are paid by the insurer.

    The IRO's decision is binding on the insurer, but not on the claimant. The IRO is immune from damages except for bad faith or gross negligence.

    "It's important to remember that as our population ages, the importance of quality of life for seniors affects the entire family," said Susan Voss, Iowa insurance commissioner. "The NAIC and states are taking a broad approach through targeted legislation and model laws to ensure that the entire family unit has the appropriate tools to navigate long term care and long term care insurance. As life styles change and the population demands different types of living arrangements and services, regulators must be ready to assist when necessary and appropriate."

    The NAIC is working on modifying its Model Act to require independent review. Based on discussions through early March 2009, the main differences between the draft and Iowa code are as follows:

  • The draft applies to all group and LTCi policies, regardless of ERISA.
  • The draft requires the claimant to contact the insurer instead of the insurance commissioner (this might be changed to conform to Iowa) and has a 120-day window instead of a 60-day window.
  • The $25 filing fee is optional for the state. The Act does not address refunding the fee if the claimant prevails.
  • If the independent review ruling favors the claimant, the IRO must identify the dates that the claimant satisfied the trigger and, for a tax-qualified policy, must provide certification that the claimant was/is chronically ill.

    • Consistent, Meaningful Claims Statistics

    In addition, to clear up varying definitions of terms such as "claims denied," "claims paid," "claims received" "denials," and "partial denials", the Senior Issues (B) Task Force has been assigned the task of creating consistent definitions for the NAIC Appendix E Claims Denial Reporting Form, so data can be aggregated and compared meaningfully.

    A draft of the Model Act revisions is expected to be adopted by the end of the year. To read updated drafts of the Model Act and submit comments, go to http://www.naic.org/committees_b_senior_issues.html

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    Don't be misled by LTCi claims statistics

    by Claude Thau

    Claude Thau a Long Term Care consultant located in Overland Park, KS. He can be reached cthau@targetins.com

    Part I in a three part series

    The key requirement of a LTCi policy is to perform when a claim occurs. State laws require insurance companies to set aside conservative reserves, determined by actuaries, that should adequately support future claims. However, the LTCi industry's claims performance has been criticized in the media.

    Brokers are responsible to do the best job they can in selecting an insurer with the financial strength and integrity to meet expectations. What should a broker believe? Are claims paid appropriately? Will carriers pay future claims appropriately?

    A startling "statistic" regarding LTCi claims appeared in a March 26, 2007 New York Times article. The piece claimed, "In California alone, nearly one in every four long term care claims was denied in 2005, according to the state." This obviously fallacious "statistic" was repeated without comment, even in insurance publications. Unfortunately, it may live on the internet forever.

    Responding to such criticisms, the insurance industry presented a more accurate and favorable picture. For example, a response from America's Health Insurance Plans (AHIP) stated that "our survey found that only 3.3 percent of long term care insurance claims are denied."

    However, brokers can incur problems if they cite statistics without understanding their basis and relevance. When brokers ask what percentage of LTCi claims are paid, carriers have responded with statistics ranging from 92 to 99 percent, which seem generally consistent with AHIP's 96.7 percent (100 percent, 3.3 percent that are denied). But definitions can differ significantly.

    Imagine that you and your brother have LTCi policies with 90-day elimination periods, and you are in an accident together. You contact your insurer immediately. After having satisfied your elimination period, you receive 36 monthly benefit payments, and then your policy expires. Your brother's claim is rejected. What percentage of claims was paid in this example? Please answer that question before reading further.

    Depending on calculation method, the correct answer is either 97.3 percent, 50 percent, or zero percent. (If you came up with a different answer, I'd like to know how!)

    The 97.3 percent answer is based on the "per claim payment" method required for filings submitted to the National Association of Insurance Commissioners (NAIC). The 50 percent answer is based on the "per claimant" method. The zero percent answer is based on the California approach, which I call the "per initial contact" method. The above-mentioned AHIP figure combined some "per claimant" data and "per claim payment" data.

    Under the "per claim payment" method, your brother filed one claim which was denied. Your 36 claim requests were all paid. In total, 37 claims were submitted, only one of which was denied. So three percent were denied and 97 percent were paid.

    California used the "per initial contact" method when it reported that "nearly one in every four long term care claims was denied in 2005." The state presumably felt the "per claim payment" method gives to much weight to people who receive several claims payments. It wanted to count each person only once. Unfortunately, it chose to determine how many claims were paid upon first contact. Because many people contact the insurer during the elimination period, the claim is not paid on first contact; it is not paid until after the elimination period is satisfied. Counting such initial contacts as "declined" claims was the primary error in the California statistic. Clearly, a proper "per claimant" answer to the question posed above is 50 percent, your claim was paid and your brother's claim was denied.

    I've been concerned that the media, insurance sales people and consumers are likely to misunderstand quoted claims statistics. As an actuary, I thought I should do a survey to test my theory rather than relying solely on my experience and instinct. So, a little over a year ago, I posed the above example, worded slightly, but not meaningfully, differently, in a survey that drew responses from 95 distributors and 82 home office staff. Eighty percent of distributors and 69 percent of home office staffed responded "50 percent". Overall, 75 percent of the responders answered "50 percent", with 14 percent (mostly home office) saying 100 percent were paid and five percent of both distributors and home office people saying "zero percent" were paid. Two percent answered "97 percent", two percent answered "99 percent" and two percent gave other answers.

    Interpreting surveys can be tricky, as it is hard to figure out what someone was thinking. However, it seems clear that 75 percent used a "per claimant" definition. The 97 and 99 percent answers seem consistent with the "per claim payment" method, with respondents estimating the value of "36 out of 37."

    The difference between the "per claim submitted" approach and the "per claimant" approach results from a difference in definition of what a claim is.

    Other differences, such as the California approach, result from differences in defining denials. The range of carrier statistics mentioned above may be attributable to different definitions of a denial rather than differences in claims adjudication.

    For example, the NAIC method excludes claims if the policy is not in force, the elimination period has not been satisfied, or the claim is attributable to a pre-existing condition, but it counts all other denials including a home care claim submitted under a facility-only policy. People might wonder why a claim unpaid due to a pre-existing exclusion is not considered to be a denial while a claim unpaid because of another exclusion is considered to be a denial.

    Clearly, proper claims payment is critical and we have to be careful in evaluating claims payment statistics. The good news: regulators are taking steps to help brokers make such judgments, as will be discussed in the next part of this series.

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    The cost of long term care: The message behind the numbers

    by Christopher Matz

    Christopher Matz is National Sales Director for Group Long Term Care at Prudential Insurance Company of America. He can be reached at christopher.matz@prudential.com.

    Consumers understand the importance of planning for their financial futures, but continue to have misperceptions about the costs associated with long term care services and the benefits of long term care insurance.

    These are the findings of the 2008 Long Term Care Cost Study from The Prudential Insurance Company of America. The study reveals that the number of Americans aged 65 and older will double to 71 million by 2030, comprising roughly 20 percent of the U.S. population. Meanwhile, the average costs for long term care services increased as much as 13 percent over the past two years and are expected to continue to rise.

    These are daunting findings to be sure, but not entirely unexpected. However, if we look beyond these initial conclusions, this study can help us, as long term care insurance professionals, tell the long term care story and enhance our sales presentations. Let's take a closer look at each of the major findings of the study in more detail.

    Misperceptions About Long Term Care and Insurance
    American consumers see long term care insurance as an important building block to a successful retirement plan, yet only one in 10 U.S. workers currently owns a long term care insurance policy. This disappointing statistic offers the cliche "good news and bad news." First, the bad news. As an industry, we've been able to effectively communicate the importance of long term care insurance to only 10 percent of U.S. workers. Of course, the good news is that 90 percent of the demographic remains untapped. Our goal should be to continue to educate consumers about long term care issues.

    For example, the study reveals that the cost of a semi-private room in a nursing home varies from approximately $43,000 to well over $100,000 per year yet, only 16 percent of individuals surveyed could correctly assess those costs. Furthermore, only 17 percent of surveyed individuals could correctly assess the average annual cost of a long term care insurance policy. This means that we, as sales professionals and as an industry, are not doing an adequate job of telling the long term care story.

    An Important Age Segment Is Growing
    The age 65 and over segment of our population is rapidly growing to an estimated 71 million individuals by 2030. Facility care projections estimate that over one-third of these 71 million older Americans will need some nursing home care in their lifetimes; that's roughly 24 million people with a potential demand for long term care services.

    Our goal as long term care professionals should not be to convince individuals that they will be part of that statistic, but to use that information to help them answer one important question: "Am I financially prepared to meet the costs of long term care services should the need ever arise?" From there, we can explain how long term care insurance can help them with those costs.

    Costs of LTCi Are Rising
    The study found an increase of five to 13 percent in the average costs of long term care services in the past two years alone. Even at the low end of this scale, the increases are greater than the rate of inflation and, more distressingly, far greater than the rate of investment returns for the vast majority of Americans, especially in today's volatile economic climate. The possibility of an individual saving enough money to self-insure against a potential long term care need is increasingly unlikely.

    Perhaps the most useful section of the report is the clear and concise listing of average costs for home health care, home health aides, nursing homes, and assisted living facilities in several major U.S. cities and all 50 states. This data may prove to be invaluable when discussing the financial risk that a long term care need may present, especially when considered along with the typical cost increases.

    Again, as long term care professionals, we wouldn't want to use these numbers as "scare tactics." Rather, these costs can be used to quantify an individual's potential financial exposure. For example, people know what they paid for their homes, thus they have a quantifiable financial exposure. If the house cost $300,000, then they know to insure the house for that amount. The cost of care numbers can be used similarly to tell the story of potential exposure to long term care costs.

    Applicants Are Younger
    Over the past decade, the average age of a long term care insurance applicant has decreased to 58 from a high of 67 in 2000. There are many reasons for this:


    The final bullet point might very well be the most important. As long term care insurance becomes more and more prevalent through work place benefits, naturally younger (i.e., working-age) adults, are being reached. Individual sales historically reach older consumers.

    This trend toward younger issue ages is a definite benefit to long term care insurance sales professionals. Not only can working-age adults visualize where the money will come from to pay for premiums (as opposed to retirees on a fixed income), but there are fewer underwriting declinations due to reduced underwriting for some employer plans or simply because the group is more healthy.

    Furthermore, working-age adults are more likely to know someone who has required long term care and will understand the time and financial commitment providing for long term care needs entails. Add to this the increased financial savvy of working adults, and you have a growing movement toward acceptance of long term care insurance as a necessary planning instrument.

    The 2008 Long Term Care Cost Study is available at www.prudential.com/ media/managed/LTCCostStudy.pdf.

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    Group LTCi demands 'needs based' marketing

    by Allan Checkoway

    Allan Checkoway is a principal with Disability Services Group, Newton, Mass. He can be reached at allan@disabilityservices.com.

    Group long term care insurance is gaining a more solid foothold in America's corporate employee benefit programs, with greater public awareness of the risks and issues connected with the need for long term care.

    Solid evidence of the changing long term care landscape has recently shown up in the market penetration reports of several long term care insurers.

    It wasn't too many years ago that the average age of long term care insureds was late 60s. Yet recently, according to a Unum report, the average age of a new group insured was 43.

    Long term care insurance today is being marketed to the American public predominantly by two types of advisors. First is the cadre of independent life insurance agents, financial planners and long term care specialists that deal with their prospects one-on-one. I'll generalize and say that their interviews involve problem solving and designing an LTCi program that best satisfies the needs of each individual client. The "norm" is to design the best overall LTC plan while keeping within the client's budget objectives.

    Our next group consists of employee benefit brokers and advisors who are bringing the topic of long term care insurance to the attention of their existing employee benefit clients. The benefits broker is usually trained to suit the overall needs of a group of employees (and not individual employees), balanced by the financial goals of the employer.

    Installing a "core" LTC program presents the opportunity to let each employee "buy up" from a "base" or "core" benefit. A common "core" benefit might be $2,000 per month, 90 day EP, two year duration and no inflation option. We then end up with a readily affordable premium of less than $25/month. The question we have to ask is, does a "core" or "base" benefit ($2,000/month x 24 months = $48,000) do the job?

    Absolutely not and that is the problem. Industry statistics tell us that less than 20 percent of the employees will buy up to more adequate coverage, such as at least $4,000 to $6,000/month, three or five year duration, with simple or compound inflation. As a quality program, with inflation, can carry a $150/month premium, depending upon age, too many employees decide the "core" plan is enough. They think "at least now I have some coverage" or "Something is better than nothing", which is far from the truth.

    The problem is that once they have a core plan with a two year duration, it's too easy for them to "let themselves off the hook". Were we sitting with them in their homes or office, working with them one-on-one, we'd have the opportunity to design a program consistent with their goals and needs.

    LTCi ALERT
    Within the process of marketing group LTCi, I see a potential danger that necessitates we put you on an LTC "alert". The more successful group LTC insurers make available enrollers to meet with individual employees signing up for coverage. I don't know about you, but after three decades in this business, I'm not accustomed to people "signing up". I question the value of what they'll be signing up for. My experience has been that an employee "signing up" will buy coverage based on premium and affordability, not necessarily based on need.

    These are the things an enroller might say:
    "A two year duration is adequate."
    (without understanding or stressing the average duration of care is three to five years, eight to 10 years and more if Alzheimer's is the cause of the claim).

    "Yes, the inflation benefit is expensive so let's put the additional premium towards a longer duration or shorter elimination period."
    (without addressing the fact that the monthly benefit in 20 years will be half of what's needed).

    "How much more can you comfortably afford to put towards your LTCi program"
    (If the employee is only focusing on the affordability and premium amount and doesn't feel the need to stretch financially, which he would if he understood that there's more than a 60 percent chance he or his spouse will need care. Moreover, he might become uninsurable next year when the guaranteed issue has gone away).

    The enroller is trained to obtain a premium commitment and spend it, not necessarily based on "needs". Whereas, the one-on-one professional advisor will focus on a "needs driven" approach.

    When the employee understands the risk he's facing and realizes he has to address it before he becomes uninsurable, he'll be more likely to stretch to find a way to come up with the necessary premium, out of concern for himself and his loved ones.

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    Three step primer; 'one of a kind' benefit: LTCi and the small business market

    by Raphael Paola

    Ray Paola is director of long term care insurance with Broker Service Marketing Group, Providence, R.I. He can be reached at ray@bsmg.net.

    ANALYZE THE RISK
    When working with the small business it is important to determine who the key decision-maker is. Is it the owner? Is it the key executive in charge? The producer must speak with the key decision-maker, the person who has the ultimate say to implement a LTCI Plan, decide who may receive employee contributions, etc. When the producer works with the human resource person we find that that human resource person must then repeat all the benefits and facts of the LTCI Plan (as it was explained by the producer) to someone with decision making authorization. When this is done important information is lost in translation. The concept that was originally explained is just diluted.

    The producer must also be aware of the overall health of the group, know enough about the employees health to allow the decision maker to know if this LTCi plan should be fully underwritten or issued on a simplified issue basis. Another key question is, will this LTCi plan consist of any employer contributions or will it consist entirely of voluntary contributions and voluntary participation? This is important to know, as the producer can predetermine the success of the LTCi program by the commitment of the employer to provide premium contributions and to allow the use of company time for educating employees on this valuable benefit.

    TRANSFER THE RISK
    Once the producer obtains the "go-ahead" with the LTCi plan, the enrollment support is very important. The enrollment should begin with "top - down" process, meaning that the key decision maker is the first person the producer should educate LTCi and the first person to enroll in the LTCi plan to maximize the successful enrollment.

    Next step is for the producer to meet individually with key employees of the business. Key employees based on loyalty, longevity and productivity to the business. The key decision maker will freely give these names to the producer. This group, in most successful LTCi plans, will receive some percentage of employer contribution to the LTCi premium for the plan they have designed during their individual meeting with the producer. The owner and key employees will produce the most LTCi premium in each plan.

    The employer must be willing to notify all other employees via a series of e-mails and on-line information about the plan. These e-mails will consist of facts about the plan in an attempt to help each employee make an informed decision.

    On line information must be available for all those eligible to participate. Employer must agree to group employee meetings on company time and allow individual employee meetings with qualified LTCi producer for maximum effectiveness in each employee's individual LTCi coverage.

    The producer must be able to make the key decision-maker understand that an LTCi plan is a "one of a kind" employee benefit. It is a benefit that the owner may set up just for himself and his non-employee spouse. He can then offer benefits to his employees and he can base them on time, talent, and tenure within the firm. Also, the employer, if he chooses, can pay certain premiums with the business check book either in part or in full, and no matter who pays the premiums, the LTCi benefits are tax free to the extent of the per diem limit, which in 2008 is $270.

    EDUCATE YOURSELF
    To provide the best education and advice to all participants, the producer should be enrolled in AHIP's LTCP designation program. Completion of this course gives the producer the structured education and the confidence to advice employees by clarifying facts and allowing employees to make informed decisions about the transfer of their long term care risk.

    An informed and educated the producer, with strong support from the LTCi wholesaler, will reach more employees to assist them in properly transferring LTCi risk to a financially sound carrier.

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    LTCi's youth movement: Average age for LTCi purchase continues downward trend

    by John Noble

    John Noble is director of long term care products for Unum. He can be reached at jnoble@unum.com.

    Originally thought to be a benefit primarily for the elderly, long term care insurance continues to evolve from a post-retirement purchase to a staple of financial planning for those in their 40s and 50s.

    A study of buying trends shows that group long term care insurance is being purchased by Boomers and Gen Xers, and that employers are helping with some of the funding of these policies. Other industry studies show that the claimant age is dropping as well.

    This may be present a valuable source of prospects for advisors already working in the LTCi market, and for those who are not, it may provide an enticing entry point for this important product.

    LTCi Buying Trends
    The average purchase age of long term care insurance in the group environment is 44 years and the average purchase age in the individual market is 57 years, according to Unum's 2008 Landscape of Long Term Care.

    Buyers of long term care insurance continue to get younger as the realization that the benefit is needed to cover severe unexpected illnesses, diseases, injuries and accidents continues to grow. Also a factor contributing to the younger buying age is the lower premium paid by younger purchasers. With the cost being less when purchased in the 40s vs. the 50s, more buyers are purchasing in their 40s. In fact, the longer a person waits to purchase coverage, the more expensive the premium.

    Additional buying trends show that women represent the majority (52 percent) of the purchasing population of group long term care insurance. The top five industries purchasing group long term care insurance are law firms, physicians, insurance brokerages, management consulting services and engineering firms. The top five states purchasing group long term care insurance are California, Florida, Ohio, Texas and Georgia.

    Another buying trend in group long term care insurance is the growth of home care provisions. Last year, not one Unum group long term care policy was purchased for nursing home care only, evidence of a dramatic trend indicating Americans' desire to "age in place."

    LTCi Revealing Younger Claimants
    Over the years, data has dispelled the common misconception that long term care is just for the elderly in end-of-life situations. Forty-six percent of group long term care claimants are under the age of 65 at the time of disability. Many Baby Boomers are hitting the age when long term care is on their minds, but many times that is because they have their parents in mind. However, they should be thinking about their own long term care needs.

    The Landscape of Long Term Care analysis of group claims trends also shows:


    A growing number of individuals need long term care at a relatively young age. New research has revealed a trend toward claims involving policyholders in their 20s and 30s.

    As a result of the significant demographic shift, a variety of long term care policies with more limited levels of protection allowing for additional coverage in the future are available. Still, people are unaware of how many individuals and families already benefit from having purchased long term care insurance. As more individuals become aware of, and understand the importance of, planning for long term care needs, the number of individuals and families drawing benefit from this coverage will only increase.

    Employer-Funded LTCi Continues to Grow
    There are now nearly 10,000 employer groups offering a form of employer-sponsored long term care insurance with just more than two million Americans insured by these plans, according to AALTCI's 2008 SourceBook.

    Employers continue to realize that the demand for long term care insurance among employees is growing and employers are increasingly willing to pay for the benefit. In 2007, employers provided some premium contribution in 92 percent of cases.

    Data also reveals a trend that smaller and mid-level employers are willing to offer long term care coverage to their employees and also fund some of the cost. More than 53 percent of employers offering long term care coverage have 250 employees or fewer. More than 36 percent of those employers have fewer than 100 employees.

    The landscape of long term care insurance is evolving. The demand for this benefit will continue to increase as employees become more aware of the high probability that they will need long term care at some point in their lives. Industry experts forecast that over time, long term care insurance will potentially replace the role of the unpaid family caregiver, and could be as commonly demanded as standard health care benefits.

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    Today's LTCi: Protecting income against health care costs

    by Kyle Metcalf

    Kyle Metcalf is Director of LTC Marketing with HealthPlan Services, provider of advanced business process and distribution support outsourcing solutions for fully-insured products in the insurance industry. He can be reached at (www.healthplan.com).

    Sharp declines in investment values have forced many Baby Boomers to face the possibility that they will outlive their savings. For agents and brokers, this presents an excellent opportunity to open a meaningful dialogue with their Boomer clients about the role long term care insurance (LTCi) can play in protecting retirement income by ensuring that the future costs of long term care will not deplete financial resources.

    To do this effectively, agents must understand the Boomer mindset when it comes to planning for long term needs. It is also important to understand how recent market changes have impacted carriers so they can be confident that they are placing their clients with strong companies.

    Boomers and LTCi
    The 2008 Lincoln Retirement Institute Survey sheds light on the apparent love-hate relationship Baby Boomers have when it comes to LTCi. While 85 percent of those surveyed acknowledge that it would be wise to purchase long term care insurance to protect themselves and their loved ones, only 35 percent have done so as part of their retirement planning.

    Eighty percent of respondents said they know that long term care costs could significantly reduce their retirement income, and two out of three acknowledged that those costs could force them to sell their homes. Yet 73 percent plan to use their savings or investments to cover long term care versus insurance. Nearly half stated they would use Medicare and health insurance to help pay for long term care expenses.

    It is a course of action that will put the financial stability of many Baby Boomers in jeopardy for two reasons:


    Also, the older an individual is, the harder it will be to qualify for LTCi, as many policies have age and health status restrictions. If coverage is written, premiums can be astronomical.

    The State of the Market
    The current economic conditions responsible for depleting the value of retirement funds have also impacted LTCi carriers. While the products themselves have not changed substantially, the financial strength of carriers has taken a beating and caused significant shifts in the market.

    Some established LTCi carriers are slashing their wholesale marketers, switching to individual pricing and/or backing away from lifetime benefit offerings. Some are pulling out of the individual market altogether.

    Meanwhile, new companies are coming onto the scene to take advantage of gaps left by the departure of established carriers in key niches, such as substandard lines. In fact, as carriers continue tightening underwriting, the demand for substandard coverage is on the rise, attracting the attention of smaller companies who are willing to bank on a smaller book of business.

    The evolving LTCi market, coupled with falling stock prices, has left many agents wondering where to turn when it comes to protecting their clients' interests. That is why it is important that agents evaluate carriers on their financial strength. The best strategy is to stick with A-rated companies that have been in business for at least five years.

    Making the Sale
    Armed with an understanding of Boomers' views on LTCi and the make-up of the market, the question now becomes how to package LTCi into an income protection strategy for their clients.

    At the individual level, a powerful argument is to demonstrate how LTCi can offset the losses clients have already sustained to their retirement plans. An Employee Benefit Research Institute analysis of 2.2 million 401(k) participants found that average losses ranged from 7.2 percent to 11.2 percent in the first nine months of 2008, while the Congressional Budget Office reports that pension plans have lost 15 percent of their assets over the past year.

    For those Baby Boomers planning to use savings and investments to cover future long term care needs, the losses in 2008 alone have already placed them in financial jeopardy. However, by investing in LTCi now, they can offset the risk that their retirement assets will be insufficient to cover long term care needs even if investment values continue to decline.

    It is also important to emphasize that the question of long term care needs is more of a "when" than an "if." The lifetime probability of becoming disabled in at least two activities of daily living or of being cognitively impaired is 68 percent for people age 65 and older. By 2050, the number of individuals using paid long term care services in any setting is expected to reach 27 million, more than double the number 2000.

    At the employer level, key selling points for including LTCi in voluntary group offerings are the tax advantages, the flexibility afforded by the ability to discriminate by employee class, and the simplified underwriting and lower premiums available through group coverage.

    When an employer pays for LTCi as part of benefit packages, they can carve out executive-level coverage that would pay, for example, 100 percent of partners' premiums for one level of coverage. They can then do a minimal offering for other employees that would pay 100 percent of more limited benefits. In most cases, the premiums will be low enough that employees will opt to pay out-of-pocket for higher coverage levels.

    Partner with Experts
    To ensure they are leading their clients down the most financially appropriate path, agents must have a deep understanding of how the various policy types work and the impact market and economic changes will have on availability, coverage, etc.

    A smart strategy is to partner with a managing general agent (MGA) that specializes in long term care. These organizations have the resources necessary to keep up with all the moving parts that make up today's LTCi market, including keeping tabs on the financial strength of the various carriers. They also have the specific expertise necessary to help agents properly position LTCi in their clients' retirement portfolios and can streamline the underwriting stage.

    For agents willing to team up with the right partner or do the legwork on their own necessary to demonstrate the role LTCi can play in protecting retirement income, the negatives that have come out of the economic downturn can be leveraged into financial positives for them and their clients.

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    Market trends drive product innovation

    by Matthew DeSantos, JD

    Matthew DeSantos, JD, is Vice President, Marketing and Business Development at National Life Group, Montpelier, VT. He can be reached at mdesantos@nationallife.com

    In the past few years social and economic trends have driven consumers and their financial service representatives to demand products that directly address these issues. The insurance industry has adapted and provided flexible and innovative products to help meet the challenges.

    What are these trends? They are the daily grist of our media mills. We've seen how volatile financial markets can be. Real estate values do go down. Interest rates can languish at low levels. Purchasing power is eroded by inflation. Medical costs in retirement have increased 41 percent from 2002 to 2007, as research from Fidelity Investments shows us. In 2007, savings as a percent of personal disposable income was 0.6 percent (U.S. Department of Commerce). People are living longer. People are working in retirement. Defined benefit plans are scarcer. Government programs are in trouble.

    These financial facts have increasingly led consumers to ask: "how can I ensure I'll have enough to live the retirement I want?"

    This has become a complex question.

    Consider an example of market volatility. On December 1, 2000 the S&P 500 index stood at 1,315.23. On November 30, 2007, the index was 1,481.14. That is a modest 1.7 percent annualized return. On December 1, 2008 the index closed at 816.21. That is a -5.8 percent annualized return since 2000 and a one-year return of -44.9 percent.

    A person retiring on December 1, 2007 had a much different perspective on retirement than a person retiring on December 1, 2008. Even the first person probably had a revised perspective one year later if they had any equity exposure.

    The mantra is that, long-term, on average, equity investment is required for providing the higher returns necessary for funding adequate retirement accumulation. Few would dispute this, though there are many variations on what constitutes proper asset allocation.

    But your clients are not interested in mantras or averages when it comes to their own retirement. Individuals planning for retirement are justifiably concerned about sequence risk or, "what happens to me when the markets tank right before I retire?"

    The past few years have seen the insurance industry address this primary concern in several innovative ways through the development of new generations of products. The most obvious example has been the recent sales successes of variable annuities. While variable annuities are not a new idea, the guaranteed minimum benefits now being added to the basic chassis have enjoyed wide popularity and are continually evolving. LIMRA, for third quarter 2008, tells us that the most recent election rate for these benefits is 83 percent when one or more of the benefits is available on a purchased variable annuity contract.

    These benefits typically provide a floor guarantee of withdrawal, income, or accumulation that the annuity owners can rely on in the event they fall victim to sequence risk. These guarantees often provide some ratcheting or high-water mark that will provide more than just a return of premium in the event of ultimate market non-performance. In other words, these guarantees underwrite market risk and allay consumer fears about losing their retirement lifestyles.

    Another category of products, sitting between variable and fixed products on the risk-reward spectrum, is that of fixed indexed life and annuity products. These products always provide the minimum crediting rates and cash surrender values of fixed products yet can offer excess indexed credits related to an external index of some equity or bond measure. Most importantly, these products do not provide negative returns when external indexes lose ground. They provide some upside potential, yet downside protection on a fixed product chassis.

    Fixed indexed products are not new. However, the latest generation of products have adapted to current conditions to help meet consumer demands.

    For instance, fixed indexed annuities have begun to add guaranteed minimum benefits similar to those found on their variable cousins. While there is no risk of investment loss with a fixed indexed annuity, these benefits offer a protective floor in the event of index underperformance. Again, many of these benefits offer a secondary benefit floor ratcheting up at some assumed interest rate. So even if an indexed annuity never returns excess interest credits, a theoretical possibility, but extremely unlikely, the guaranteed benefit would provide a benefit base richer than the accumulation value.

    Some fixed indexed annuity carriers have also added features that will offer enhanced annuitization payouts in the event of certain qualifying events such as chronic illness or nursing home confinement. These payments can be used to cover costs of care, thus helping to address another current concern in retirement planning.

    Fixed indexed life insurance products have also evolved to help meet the challenges of our current financial environment. As fixed universal life contracts, the current generation of products offers the full range of benefits, features, and flexibility of universal life insurance. Added to this is the potential to realize excess interest credits very similar to fixed indexed annuities without the potential investment losses of variable life products.

    Some of the later generation benefits included on modern fixed indexed life products provide living benefits. These may provide for acceleration of policy death benefit, prior to death, in the event of chronic, terminal, or critical illness. Other benefits provide payments in the event of disability or waivers of premium or policy deduction.

    A recent innovation that has been rapidly embraced across all life insurance product categories is the "overloan" protection benefit. Essentially, this benefit pays up a policy that is in danger of lapsing due to depletion of policy values due to policy loans. Paying up and maintaining the policy in force can avoid the negative and potentially large tax consequences of policy lapse for retirees in their advanced years. Limitations apply to exercising this option which vary by company.

    In an effort to address concerns about outliving assets or longevity risk some carriers have been introducing new incarnations of the deferred income annuity or longevity insurance. These products provide a stream of income at a designated attained age in exchange for an up front premium. In their purest form, there is no cash surrender value or death benefit during the deferral period. As such, these products can offer the considerable leverage of mortality and time to help provide a high level of benefits relative to premium amounts. It's too soon to tell whether this product will catch on with consumers, but longevity risk is a growing concern with consumers and industry experts alike.

    These are just a few of the more apparent examples of insurance industry product development directly addressing the challenges of our current social and economic conditions. Doubtless new solutions will continue to evolve as consumers and advisors demand solutions to today's retirement planning complexities.

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    Good partners: LTCi accessibility on the rise

    by Bob Vandy, CLU, ChFC, LUTCF, CLTC

    Bob Vandy is Vice President of Marketing with New York & National Long Term Care Brokers, Clifton Park, N.Y. He can be reached at 800-695-8224 x105 or at bvandy@nyltcb.com.

    The Deficit Reduction Act (DRA) of 2005, signed into law in February of 2006 by president Bush, had a significant and negative impact on the ability of residents to transfer or gift away assets and to then count on Medicaid as the primary payer of their ongoing long term care (LTCi) costs. For those residents counting on Medicaid to pay for their LTC costs when needed, that's the bad news.

    Now, the good news. Another part of that legislation that is now making more headway has to do with "Partnership" programs in states beyond the original four states (NY, CT, CA and IN) that rolled out such plans in the early 1990s.

    For the uninitiated, Partnership plans are basically a "partnership" between the resident of a particular state, that state's Medicaid program and participating insurance carriers. The Partnership programs under DRA work as follows:

    Resident -- agrees to buy a Partnership-approved LTCi policy and use its benefits, as first payer, upon needing LTCi services covered by the policy.

    Insurer -- agrees to issue a policy meeting certain requirements mandated by the respective states as part of their Partnership guidelines, which may vary slightly from state to state, and to comply with certain reporting requirements to the Partnership program, Medicaid, etc., among other things.

    State Medicaid system -- agrees to allow the resident, typically upon exhaustion of LTCi policy benefits, to protect an amount of his/her assets equal to the amount of benefits paid out from the Partnership LTCi policy (a.k.a. "dollar for dollar" asset protection), in addition to the normal Medicaid asset guidelines set forth in that resident's state, and allow the person to enter the Medicaid system. The resident's income is still taken into consideration, as it normally would be absent the Partnership.

    Byway of example, let's presume your client is age 55 today and purchases an LTCi policy with a $200 per day benefit and three year benefit period, with five percent compound inflation. The initial "pool" of policy benefits is $219,000. If she went on claim tomorrow and used the whole daily benefit each day for those three years, she will have used up her $219,000 benefit pool, assuming the pool didn't inflate. If she applied for Medicaid once the policy pool was gone, and had $300,000 in countable Medicaid assets (beyond what she could normally keep under Medicaid guidelines), she would need to "spend down" the $300,000 to the $219,000 level and could keep the rest. If she didn't have a Partnership policy and used up her policy benefits, the entire $300,000 of assets would need to be spent down.

    When we consider time and inflation, the advantages become even more dramatic. If she didn't have a claim until age 84, the approximate average age for LTCi claim start, the pool of money would have doubled, then doubled again (rule of 72 -- five percent inflation -- pool doubles about every 14.5 years) to a total of $876,000. Given the example, your client could protect $876,000 of assets, in addition to the normal Medicaid asset levels allowed. That's a lot of asset protection.

    You might ask: "How do I offer these policies to my clients?" The answer depends on whether the client's resident state has adopted a Partnership program and whether you have complied with that state's training or certification requirement for LTCi and, specifically, the Partnership.

    To date 18 additional states have adopted programs and a number of others are in the process. If your state offers the Partnership and you are certified per that state's rules and, in some instances, carrier requirements, you can sell Partnership plans.

    Bottom line? This is a great opportunity for you to approach your clients and prospects about long term care planning, the advantages of a Partnership LTCi policy and how you can help .

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    LTCI premium increases: The good, the bad, and the ... reality

    by Lisa McAree

    Lisa McAree, CLU, LTCP, is President of The McAree Company, a Managing General Agency specializing in long term care insurance. She can be reached at lmcaree@mcaree.com or 781-380-1027.

    The long term care insurance market has matured and the contracts of today reflect that experience.

    Ten years ago, at a Travelers Insurance Company advisory committee, then President Sandy Weill was quoted as saying "long term care insurance has been under-priced and we have to do something about it". The general agents sitting around that table (including myself) erupted in an only slightly more professional version of Chicken Little's famous saying: the sky is falling, the sky is falling!

    Fast forward 10 years. As it turns out, Travelers did increase premiums on some of their policy contracts, as did other major companies in this market including CNA, Genworth, John Hancock (recently announced), PFL, Transamerica, UNUM and a host of others. Some companies increased rates by a higher percentage than others; a few may need to come back for more.

    What happened? Did the world of long term care sales come to an end? Well no, but frankly it did have an impact on sales. Consumers and agents alike had their faith in the product shaken; resulting in declining sales for several years. Consumers did not believe that the product would actually provide protection against the future need for long term care. They worried about unaffordable premium increases in their older years. The news media fueled those fears by reporting on the worst case scenarios rather than the moderate and responsible companies. The incidental agent, characterized by two to four policies per year, dreaded the fall out from angry clients. Insurance companies, and Wall Street, worried about their bottom line.

    The sky, however, has certainly not fallen. Insurance companies have responsibly raised premiums due to a changing marketplace and the need to meet their future obligations to their policyholders as well as their shareholders. Consumers have come to understand the need for the premium increases, and the majority of them retained their coverage. LTCI specialists continued to sell the product, and slowly but surely the incidental agent is coming back into the market.

    It is helpful to understand why insurers needed to increase premiums. There were several reasons. First of all, policyholder persistency exceeded all expectations. Not only are more people retaining their policies, but a significant percentage of them have lived beyond expected mortality. A longer life span, while good for the American population, is riskier for insurance companies as it means more or longer claims. Interest rates have remained at unforeseen lows since 1990, helping to fuel the housing boom but a problem for long term investors such as insurance companies. New types of care, such as assisted living, were introduced. This less intensive form of long term care is more acceptable to seniors and their family members than nursing home care, thus resulting in earlier claims activity. The combination of these factors created pressure on insurance companies to increase premiums or, worse, get out of the business all together.

    If you look at the premium costs 10 or 20 years ago compared to today you will find a marked difference. Buying a policy today costs much more than buying a policy a decade ago. Even when you factor in premium increases on the in-force policies, those policy contracts still cost less than a policy bought today utilizing the same set of variables.

    The cost of long term care itself has increased even more. In 2007, the average annual cost in a nursing home across the United States was approximately $77,000 per year. Twenty years ago, in 1997, the average cost was $42,000; and back in 1977 it was just $8,280 per year. In Massachusetts and bordering states, the average 2008 cost has risen to $98,000 per year for a shared room in a nursing home.

    Comparatively speaking, an additional 20 or 30 percent increase in premium doesn't seem that out of line.

    I suspect many people think that insurance companies tried to pass on some of their need for premium increases on in-force policyholders to the new buyers. LTC actuaries and senior management have assured me this is not true. Insurance companies are not allowed to do this under law. Each policy series needs to stand on its own reserves and pricing.

    What are the alternatives to increasing premiums? In my opinion, the worst case scenario would be an onerously strict interpretation of benefit qualification and benefit features. Companies could reduce expenses by cutting staff, lessening investments in technology, or other home office equivalents of shutting out the lights. None of these options are in the policyholder's interest. In addition, there are financial capital requirements that limit the carrier's utilization of riskier investments.

    I do not underestimate the financial pain that premium increases cause to our policyholders, particularly our older policyholders. The insurance companies need to be as prudent as possible when considering rate increases on their in force blocks of business. Aggressive premium increases will harm new sales and invite further government oversight.

    Long term care service delivery is constantly evolving as our society ages and America struggles to come to terms with the needs of our elders. An insurance policy issued before the development of assisted living facilities or technological advances in robotics cannot continue to meet the policyholder needs if asked to provide more benefit for the same cost.

    Policies may have been less expensive in the early years of LTCI but the benefits were less robust. Many complaints regarding long term care claims are due to limitations in coverage. In some cases the client chose not to buy enough coverage or were not offered that option. Every case will be different; but that is a reflection of the infancy of the long term care insurance market 20 years ago. Today, informed agents educate consumers as to the importance of home health care coverage, inflation protection and other features we now consider standard. The market has matured and the contracts of today reflect that experience. Most importantly for consumer awareness, personal family experiences has brought the true cost of long term care home to many of the baby boomer generation.

    There is evidence that we have rounded the curve in the long term care market. LTCI sales increased last year over the prior year for the first time since the federal government's plan roll out. According to the American Association for Long Term Care Insurance, 2008 LTCi Sourcebook, there were approximately eight million LTCI policyholders at the end of 2007. The insurance companies paid out over $3 billion in claims by the end of 2007. Seventy six percent of individual policies purchased in 2007 were by people between the ages of 45 and 64.

    No one likes to pay more, but everyone wants to receive fair value for their money. A well reasoned explanation goes a long way toward relieving the fears of your current and prospective policyholders. Appropriate premium increases for under-priced long term care insurance policies are necessary to continue to ensure that this valuable protection is there for us and our clients in the years to come.

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    Yes, you can self insure your long term care

    by Brian M. Johnson, CLTC, MBA

    Brian M. Johnson is certified in long term care (CLTC) and is certified with the New York State Partnership for Long Term Care. He is Director of Business Development with National Long Term Care Brokers, Ltd.,Clifton Park, N.Y. He can be reached at 518-688-8154.

    If you're like most Americans, you'll think about planning for long term care as you enter your 50s and 60s; but the fact of the matter is most Americans will leave planning for long term care to chance. The majority of impaired seniors rely solely on donated care and their own savings.

    There are two reasons for this. The first reason is that one year in a nursing home or 24-hour home care can cost more than $66,000 today. With costs increasing at about four percent per year, this care could cost $150,000 to $250,000 per year in 20 or 30 years. With these astounding statistics, most of us deplete our retirement portfolios and savings very quickly paying for long term care.

    The other reason for relying on donated care or personal savings is that someone decided not to purchase long term care insurance when it was an affordable option. When people who decided against long term care insurance are asked why they didn't purchase it, the most common response is because they didn't think they'd ever need it; until they did need it. Most of us believe that we'll live long lives, but it's a fact, as we grow older, the chance that we'll need some form of long term care increases dramatically. In the year 2020, some 12 million older Americans are expected to need long term care, yet the percentage of those 12 million people who will have long term care insurance will be minimal. Why you might ask? Again, the most common answer, because they never thought they'd need it, until they did.

    Anyone who has thought about long term care insurance knows the basics about the policies and the benefits they offer. But still, it's hard to find the value in long term care insurance if one or one's family hasn't been personally affected by a long term care event. That's why a new product has been approved in New York: a permanent life insurance contract with a long term care rider and a guaranteed return of premium. Most people recognize the value of purchasing life insurance to protect family or one's assets after death, but they must also understand the importance of protect family and assets while they're alive.

    With medical advances the average life expectancy is increasing and there may come a time when you need help doing the things that you have always done for yourself. A responsible person does not want to leave that to chance or for their family to worry about. Fortunately, both needs can be addressed with a single policy. By adding a long term care rider to a permanent life insurance contract, you'll have the means to pay for assistance with activities of daily living such as bathing, dressing, eating, or if you ever need substantial supervision because of a cognitive impairment. If you ever do need assistance or supervision doing any two of the six activities of daily living, this policy's death benefit is available to help you pay for long-term care costs, keeping you in home longer while protecting your family and assets. You can use all, some or none of your death benefit to pay for those expenses. Any portion you don't use will be paid to your beneficiaries and will be income tax-favored under current law.

    To make these contracts even more attractive, many insurance companies also offer a return of premium for policies funded with a single premium. Here's a hypothetical example of how this contract would work:

    Mary has been saving money for a long time… for retirement, grandchildren, and now for long term care. But after going through such a costly ordeal with her own mother, she realizes that with today's medical costs even $300,000 may be gone in less than two years. Mary:

    Mary transitions assets to this life insurance policy with a single payment of $100,000 and allocates the other $200,000 for other needs. Through this policy, Mary is prepared for three possibilities and all of the outcomes are fully guaranteed by the claims-paying ability of the insurance company.

    Long Term Care Coverage

    If Mary needs long term care, she'll get up to $83,203 each year for six years to reimburse monthly long term care costs (that's a maximum of $6,934 per month). She'll receive these benefits up to a total of $499,218, income tax-free. That's nearly 500 percent of her original premium payment.

    Money Back Guarantee

    If Mary decides she wants her money back, she only needs to notify the insurance company in writing, and they'll mail her a check for her original payment, no questions asked. The amount received is adjusted for loans and withdrawals and a portion of the money returned may have tax implications.

    Income Tax-Free Death Benefit

    If Mary never needs long term care, her policy will provide her loved ones with a $166,406 income tax-free death benefit. If she uses only a portion of the death benefit for long term care, her policy passes the remaining portion income tax-free to her beneficiaries (less any loans or withdrawals she's taken).

    How your clients prepare for the possibility of long term care directly impacts the security of an entire portfolio and can pose a potential challenge to their retirement income. Even if they are still saving for retirement, they should consider future long term care needs.

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