From the September 2009 issue of Investment Advisor • Subscribe!

Insurance Update: An Asset to Planning

If your clients postpone buying long-term care insurance, this may be the answer

A specialized insurance product that offers long-term care coverage in addition to life insurance is gaining in popularity, according to the American Association for Long-Term Care Insurance (AALTCI). Asset-based LTC insurance, according to research conducted by AALTCI, is on the rise. Purchasers of these policies tend to be older than those who choose standard LTC coverage and also include a higher percentage of women.

Commenting on asset-based LTC's growing popularity, Jesse Slome, executive director of AALTCI, explained that "It's definitely a hotter property in the financial advisor marketplace, just because it's a simpler concept to sell than traditional LTC insurance." He also points out that many people hesitate to purchase LTC coverage because they feel that if they don't use it they've wasted the money spent on years of paying premiums. That's so, he points out, even though "people don't look at their homeowner's insurance and say, 'What if I don't use it?'" Instead, clients consider themselves lucky, he adds, if they don't use their homeowner's or car insurance, but for some reason LTC insurance "has a very unique something" that causes them to focus on how much they're spending on the policy, rather than on how fortunate they are if they don't have to use it, or on how much the policy will pay for their care if it turns out that they do need it.

What makes asset-based LTC insurance different is the death benefit: if the LTC coverage isn't needed, what remains is an insurance policy that will benefit the insured's beneficiary. That is a benefit that clients readily understand. Purchasers have to qualify medically for coverage, just as they do for conventional LTC insurance, and the policies definitely aren't for everyone, since buyers will have to be able to put away a sizeable chunk of change for the purchase. The average single premium paid in 2008, according to the AALTCI research, is $70,975. That represents a 4% premium increase over 2007, when the average single premium was $68,300. A bit fewer than half of the policies, or 49.7%, had a base face amount between $100,000 and $200,000, while 30% offered a death benefit of between $50,000 and $100,000.

Appealing to Women

Just about two thirds of the buyers of asset-based coverage last year (66%), were women. According to Slome, women are far more likely to suffer from Alzheimer's disease and thus require care; in addition, they live longer than men, so will have a greater long-term need for coverage. Women over the age of 65 are twice as likely to be living alone as men of the same age, with the percentage of solitary women rising to 62% by the time they reach the age of 75. Slome goes on to say that two-thirds of all benefits are paid to women, with 41% going to single women and 25% to married women. (Single men account for 12% of benefit claims, he adds, and married men for 22%.) Nursing home residents are also predominantly women, with 980,000 over 65 living in such a setting, versus only 337,000 men over 65.

And while 84% of the buyers of traditional LTC insurance in 2008 were younger than 65, 51% of asset-based policy buyers in 2008 were aged 65 or above. That means that a considerably larger pool of would-be purchasers missed out, since only 60.5% of applicants between the ages of 65 and 74 passed muster and were covered. (For those between the ages of 45 and 54, the acceptance rate increased to 70.2%.) So even if your procrastinating clients are interested in asset-based LTC insurance, it's not a sure bet that they'll be able to buy the coverage.

While the popularity of asset-based coverage is on the rise, Slome feels that it will definitely remain a niche product. He explains, "There's only a small subset of the population that has the level of disposable income" to be able to put aside $75,000 to $100,000 and not have access to it. "This is a product for older people."

Long-Term Care: Mostly a Women's Issue?

The American Association for Long-Term Care Insurance (AALTCI) has issued a "Woman's Guide to Long-Term Care Insurance Protection," which it is making available to insurance and financial professionals. The guide, says Jesse Slome, executive director of AALTCI, specifically addresses women's unique needs when it comes to LTC protection, as well as educating them on some of the issues surrounding coverage.

The guide not only spells out women's greater need for LTC protection due to longer life spans, and the odds that they will be alone at the age when they most need care, but also educates them on the circumstances surrounding women who become caregivers, since caring for a loved one can seriously affect their physical health as well as their financial well-being.

Women are usually the primary caregivers for a family member or spouse needing care, providing between 60% and 75% of unpaid care. The stress of caregiving means they are six times as likely to suffer symptoms of depression, and women who provide more than nine hours of care to a spouse "double their risk of coronary heart disease." They also lose substantial amounts of Social Security benefits, lifetime earnings, and pension benefits because of time lost from their careers in caregiving.

According to Slome, women are the ones who generally start the conversation on LTC issues, and also tend to be the decision makers on the issue. AALTCI offers the guide to advisors and insurance professionals to help them educate their clients on the LTC issues that may affect them as they age. More information on the guide may be obtained at www.aaltci.org/tools.


Marlene Y. Satter, is a freelance business writer who can be reached at harpwriter@verizon.net.
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