Not Your Grandpa’s Long Term Care 

… the times they are a changin

by Bob Vandy, CLU, ChFC, LUTCF, CLTC

PART I in a three-part series.

It wasn’t that long ago that the Long Term Care Insurance (LTCI) world was, as were many others, simpler.  We sold traditional LTCI policies that had a daily benefit around the cost of a day in a nursing home, had at least a 3 year benefit (and more likely 4 or 5, or even lifetime!), a 30 day elimination period (yeah, let’s just call it a deductible, shall we?), a host of possible riders and of course, carried a 5% compound inflation rider.  All in, the premiums probably ran around $2,200 bucks a year, on average.

Oh, and by the way, the average age of an applicant buying the policy was about 65.

All in all, life was good.  Many people appreciated the coverage, could afford the then-seen-as-reasonable premiums (which, of course, would never go up, right?) and, perhaps most important, could actually health qualify.

So…what happened?  In a word – reality.

In some respects, it is broader economic reality we’ve had to contend with (for example, in the form of a prolonged reduced interest rate environment which virtually no one could have predicted and which has had a significant impact on LTCI pricing); in other respects, it is the raw market realities of the LTCI world that have changed (such as higher than anticipated claims occurrences – due in no small part to the higher average issue ages & more liberal underwriting philosophies historically, a much higher instance of women on claim vs. men – at a ratio of 2/3 to 1/3 in fact – and a much higher percentage of people keeping their LTCI policies over the long term than originally anticipated – also resulting in higher claims occurrences).  The combination of both the broader economic factors and the LTCI market realities has led to a new world order of sorts in LTCI and the “perfect storm” of change we’ve experienced.

Significant changes…

In fact, the LTCI world as we know it has indeed changed dramatically; here are some of the changes we’ve seen:

• Some insurance carriers have exited the LTCI market (by the way, did you know that some carriers have actually gotten IN to and/or returned to the market?)
• New business premiums have gone up
• Premiums for in force policies have gone up (once thought extremely unlikely)
• Underwriting has become more restrictive
• Average issue ages have come down (by about 10 years over the last dozen or so)
• Benefit option choices on new policies have become more limited
• In some instances, gender distinct pricing has replaced unisex pricing (resulting in women paying a higher rate for LTCI than men, a direct result of the claim trend mentioned)
• Newer product choices have emerged (like “Linked Benefit” products and riders on life policies)
• Newer product design realities are emerging (maybe we don’t need to cover the whole risk?)

The flipside of this – and the main takeaway, in the author’s view, of this article – is that one very important thing has NOT changed.  And that is, simply put – the NEED!  As a result of that, we still have work to do!

What I mean by that is that the NEED for proper long term care planning still remains and is arguably more important than ever.  Longer lives are not always healthier lives, resulting in even more instances of chronic or extended care need than ever.  Splintering of family units has continued to result in an inability of families to care for their own in a widespread way.  And, it is becoming clearer and clearer that we can NOT count on a purely public solution to the LTC financing crisis in this country (case in point – how are our Medicare and Medicaid budgets doing, and oh yeah, who remembers the CLASS Act?).

So – what’s an advisor to do?

Well, first and foremost, take heart. The rumors of the demise of the LTCI industry have, in the author’s opinion, been greatly exaggerated.

Is the private LTCI world different than it was a few short years ago?  Yes.

Does that mean LTCI, as we know it, is on its deathbed?  Hardly.

If you need a recent example of this, think back to the early to mid-1990s (those of you industry-tenured long enough to remember) and the changes individual disability income insurance went through.  You may recall that unexpected claims (from soft tissue and mental & nervous disorders, for example) skyrocketed, resulting in carriers exiting the DI business, raising premiums, issuing contracts with more limited coverage than was available previously and tighter underwriting.  Sound familiar?

And, what was the result?  Did the individual DI business go away?  No. It simply evolved.  Today, we have fewer carriers in the DI market (maybe 6-8 meaningful players vs. the dozen plus carriers before), but the market has arguably “stabilized.” Products were updated to reflect current market realities and there is a meaningful DI market today as a result.

I think we see that same evolution happening in the LTCI market. As a [still] fairly new product segment, we’ve learned some things, have had to adjust (sometimes uncomfortably so) to some things, but appear to be doing – believe it or not – the right things to create a more stable environment for LTCI to not only survive, but thrive, in the next decade and beyond.  It may seem counterintuitive to some for the time being, but carriers are taking the necessary steps to provide for a solvency in the market for years to come.

In Part 2 of this article series, we’ll examine more closely the multitude of product solutions you have RIGHT NOW for your clients and prospects, and discuss ways of designing policies to fit both your prospects’ needs and their budgets.

Good Selling!!