the finance of longevity

All LTCi Protection Is Not Created Equal

Asset-based long-term care stands out as leading option for consumers

INDIANAPOLIS, February 6, 2017 – A new white paper authored by Wade Pfau, Ph.D., CFA, and Michael Finke, Ph.D., CFP® explores the impact of various types of long-term care (LTC) protection on retirement income and offers insight into the reasons consumers choose to either purchase or avoid certain types of LTC protection.

The research demonstrates that all LTC protection is not created equal in product features or in appeal to consumers, and asset-based LTC protection stands out as a leading option because of the product’s premium certainty and guaranteed benefit.

“The rising cost of care poses a significant risk to most retirees’ income, and our new analysis offers a unique look at both the effectiveness of various types of LTC products and the actions they motivate consumers to take,” said Dr. Pfau, a professor of retirement income at The American College for Financial Services.


The new study first simulates multiple long-term care event scenarios to demonstrate the retirement income impact of a hybrid LTC product, a traditional health-based policy and a self-funding approach. At the 90th percentile of long-term care costs, an unprotected retiree — one who is self-funding their protection against a long-term care event — will be exposed to risk of over $1 million in assets. In contrast, a retiree with LTC protection will be exposed to roughly one-third the risk of out-of-pocket expenses and premiums. The study then considers which LTC products are more likely to appeal to consumers.

“Our study demonstrated that a variety of types of LTC protection can significantly reduce risk exposure for retirees, but our behavioral analysis suggests that consumers may not be equally drawn to all types of LTC products,” said Dr. Finke, Dean and Chief Academic Officer at The American College of Financial Services. “Even well-informed consumers are only highly likely to purchase LTC products that provide premium certainty. And a guaranteed benefit – either as LTC protection or a death benefit – can appeal to consumers who are otherwise averse to traditional LTC products.”

“When we consider the financial modeling and behavioral analysis together, asset-based LTC protection emerges as a clear choice,” said Nicolas E. Lance, vice president of Retirement Income Strategies at OneAmerica®. “For financial professionals looking to help clients mitigate the retirement income risks posed by long-term care costs, this whitepaper makes a compelling case to strongly consider asset-based LTC protection as part of their product portfolios.”




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