Long-term care: Needs and trends

If you plan to start selling long-term care insurance (LTCI), here's a review of the basic needs and trends of the product to help you get started.

The Need

It's natural to focus on custodial-care nursing home stays because of their cost. According to the American Association for Long-Term Care Insurance's 2010 Sourcebook, a private room cost an average $220 per day or $80,300 annually in 2009. Local costs vary, but obviously a nursing home stay can be financially devastating.

Nursing homes are only one delivery method for long-term care, however. In his continuing education training program for WebCE.com, "Long-Term Care Fundamentals," Paul Winn, CLU, ChFC notes that LTC involves a range of health-care services. Custodial care provides individuals with assistance in the activities of daily living: bathing, dressing, eating, etc. Depending on the person's needs, other health care services can range from intermediate- to intensive care. LTC can be provided in a person's home, community-based facilities and alternate care facilities, as well as nursing homes.

Winn cites several statistics to highlight the likelihood that clients will require LTC at some point in their lives. At age 40, he reports that the risk of needing LTC in a nursing home at some point in the person's lifetime is 36 percent. That percentage increases to 49 percent by age 65 and 56 percent by age 85. Those probabilities are much higher than the risk of being in an auto accident (0.4 percent) or having fire damage a home (0.08 percent).

Industry Trends

William Dyess, CLTC, executive vice-president with Gelbwaks Executive Marketing Corp. in Plantation, Fla., cites several industry trends worth monitoring. The first is the emergence of policies like Prudential's LTC Evolution(SM) that simplify the LTCI coverage and buying process. Insureds select a policy lifetime benefit "pool" from $100,000 to $1 million; eligible LTC charges get reimbursed at 80 percent with the insured paying the balance, eliminating the daily and monthly coverage limits.

Another trend is the growing popularity of partial-cash LTCI policies that allow insureds to collect a percentage of their full reimbursable amount each month in cash. For example, assume the reimbursement contract allows up to $6,000 with a partial-cash limit of 40 percent. If the insured doesn't need reimbursement in a given month, he or she can request a cash distribution up to the allowed amount of $2,400 (40 percent of $6,000). "(The insurer) will pay that to you in cash to pay for expenses as you see fit," says Dyess. "The other 60 percent stays in the account to be used at a later date."

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