The once stand-alone product has become integral to retirement income strategy
by Maria SarciMs. Sarci is vice-president for,long term care for Ash Brokerage, in Fort Wayne, Indiana. Connect with her by e-mail: Maria.Sarci@ashbrokerage.com.
All too often, in articles just like this one, the message about long-term care protection is that options are dwindling. Today, there are more options available than ever before. The key is understanding what they are, when they’re appropriate and how you, as an agent, can play an integral part in changing and empowering our industry to take advantage of them. This most important aspect of retirement planning has lately been challenged with more negative attention than positive, which is unfortunate because the benefit this planning brings is priceless.
Stepping back in time to the early 1990s, the question for most consumers was, “Will I really need long-term care insurance?” Unfortunately, the mindset of most consumers was that they would not need care. Many of the policies at the time only offered nursing home coverage; care in the client’s home was rarely included in a policy and no one had yet heard of assisted living. From the consumers’ perspective, the idea of going into a nursing home was not an option and something that would never happen to them. Long-term care insurance was viewed as a “nice to have” but not a “must have.”For those who did choose to look at protection options, there was a nagging sense that they had to lose in order to win.
By the year 2000, the consumer mindset had begun to change. No longer was there a sense that a care event was unlikely; there was, in fact, a much stronger sense that a care event was highly likely. With the advent of modern medical advances and increased mortality, this generation of Americans began to see firsthand what a care event for a loved one could do. With an impact that was both financial and emotional, a greater demand came for more solutions.
This demand brought about the emergence of linked-benefit insurance. Linked-benefit was the response to not wanting to lose in order to win. It offered a benefit in the event of a need for long-term care or a premature death. Consumers now had a way to invest in a policy that would cover their needs or serve as a legacy asset.
At the start of this decade we saw an even greater demand for knowledge about care planning options. Consumers who had spent the past 10 years caring for aging loved ones, and paying premiums to protect themselves and future generations, realized the growing demand to prepare for an extended care event was never more important than it is today.
Yet, the insurance companies who offered these solutions in the 80s and 90s now realized the higher benefit offerings and lower premium options offered were also met with very low lapse ratios. Why? Consumers saw great value in this type of protection.
As a result, some of these companies revisited older blocks of business and ultimately decided to increase the premiums or alter benefits on existing policyholders. Some insurers went as far as to stop selling new policies. This sent ripples through the long-term care industry; it influenced agent and consumer confidence and set the course for uncertainty that many of us still respond to today. The irony in all of this is that the coverage that was sold had so much value that consumers decidedly kept their policies! Good for them! They recognize the need for planning has never been greater and their demand has forced our industry to rethink its solutions. Good for all!
Today the LTC planning market is vastly different and in a good way. There are more solutions available to agents and consumers than ever before. Linked-benefit solutions continue to enjoy double-digit growth each year, and insurance companies continue to innovate their standalone long-term care solutions.
The introduction in this decade of Accelerated Life and Hybrid Annuity/LTC products were also developed in response to consumer demand. There is a growing need for alternative care planning options.
The evolution of the LTC industry is in full swing and it will continue to evolve just as our societal needs evolve. Twenty years ago, care planning solutions were primarily nursing home plans. Twenty years from now, there will be features offered that we have yet to imagine! Innovation is exciting; we crave it as a society. Twenty years ago, cell phones were for the elite … today, everyone has one and we can’t live without them. Likewise, we must look at the “can’t live without” ideal of preparing for later-in-life needs.
Today’s care planning market consists of solutions that:
- Combine life insurance and long-term care to create a second pool of LTC benefits
- Provide access to the death benefit (or a portion thereof) to be used for care expenses
- Combine annuities with long-term care, which can provide income to cover care expenses
- Pay a benefit if/when LTC is needed, which is standalone traditional long-term care
There are multiple variations and riders for each of these solutions, which ultimately provide the deepest LTC planning pools ever made available! Let’s look at each one and decipher where it might be used:
1. Linked-benefit life: Leveraging premium to create a multiplied long-term care benefit pool. The LTC is the key reason for purchase; the life insurance component is secondary. The advantage to this solution is that it pays a promised benefit, either for LTC or as a legacy asset. Policies include a return of premium and offer single-pay or flex-pay funding options.
2. Accelerated benefit life: A key benefit driver in this scenario is the life insurance leverage; access to the life insurance as a living needs benefit is secondary. These products offer competitive life insurance benefits with minimal costs on the riders to access the death benefit. Once the life insurance is exhausted, the living benefit is also exhausted.
3. Linked-benefit annuity: This solution combines the benefits of an annuity with long-term care. If a care event happens, the annuity can be used to cover care expenses.
4. Standalone LTC: This option calls for annual premiums that create a greater benefit pool when care is needed. There is flexibility in plan design and shared benefits among couples may be available. A multi-life opportunity is also with this solution and can be used as an employer-sponsored offering.
Family dynamics may have changed, but familial needs have not. Income, protection, freedom and peace of mind are the core elements retirees think about when it comes to retirement. If long-term care protection were free wouldn’t everyone sign up? If the answer is yes, then the challenge ahead is not “do we need?” … it’s how to fill the need. We need to educate, create awareness and empower clients to make an informed decision about something that would make all the difference in how they live through the final stages of their life.
Shift the emotional and financial risk from clients and their loved ones so that they have choice in life when they need it most. It’s not the products that should lead the discussion; it’s the impact of what the products do that should drive the conversation. This statement is a far change from how care planning has been approached for years. A spreadsheet-driven sales strategy to shop the cheapest premium is something from the past.
However, do not confuse that to mean premium tolerance doesn’t matter. Premium should, in fact, be an integral part of the planning process. After all, premiums may be ongoing and the client should feel comfortable they have the resources to sustain the premium in future years.
Like any other protection plan, LTC policyholders should review their coverage at least annually to ensure their needs are still covered. A review doesn’t have to mean change, however. More times than not, the policyholder is better off keeping their coverage intact, but the review process itself is a healthy reminder and an audit of why care planning is so important.
Dignity, grace and peace of mind are worthy reasons to encourage a conversation with your client. They will thank you for it … and so will their families, for generations to come.