At this year's NAILBA 34 conference in Orlando, LTCI is one of the hot topic sessions that will be covered by professionals within the industry. As we prepare to kick off the annual conference, Stephen Forman, vice president of Long Term Care Associates, answered a few burning questions on LTCI, short-term care, critical illness insurance and what the LTCI session at NAILBA 34 will cover.
Q: Some of our readers have spent many years talking about why stand-alone LTCI is generally better than products that combine LTC benefits with life insurance or annuity products. What would you tell them now?
SF: It’s funny, as one of the industry’s staunchest defenders I’ve certainly had to endure my share of potshots from combo product proponents who’ve argued that LTCI is risky and overpriced. But I don’t think it’s necessary to beat up on one another when making a client-facing recommendation. On the contrary, it’s a huge shot in the arm for our industry to say we’ve evolved from an "LTC Insurance" world to one of "LTC Solutions." So I don’t feel the need to argue one type of solution is superior to the other, any more than I’d say chocolate is better than vanilla — each has its pros and cons.
Now, if you’re asking me to name the pros of traditional LTCI, I’d say it’s analogous to “buying term and investing the rest.” There is no cash value, but an extreme amount of leverage: it’s the least expensive way to purchase the most amount of pure protection. Traditional LTCI is also worth considering in a rising interest rate environment to guard against “opportunity cost” risk. And of course, anyone who values partnership protection must choose qualified LTCI.
Q: What do you think about short-term care insurance products?
SF: I’ve been singing the praises of STC for years! Not only does the product address the twin objections of affordability and accessibility (i.e. the challenging underwriting associated with LTCI), but these products have an extremely rate-stable history. Stats show about half of claims will be contained within the period of short-term care (365 days or less), and even if the amounts don’t seem catastrophic to some, it’s important to remember the ancillary benefits insurance provides at claim time. Families who receive care coordination at a time of crisis have much greater peace of mind than those who must wade into the unknown without a helping hand.
Q: Do you see any kind of new or expanded role for critical illness insurance, hospital indemnity and other supplemental health insurance products in LTC planning?
SF: The products that seem to have the greatest likelihood of creating permanent shelf space for themselves in LTC planning are those in the critical illness group. The latest survey I read showed nearly 60 carriers in this market, covering 3 million lives. (By comparison, the LTCI market covers about 8 million in-force lives.) It’s primarily been a worksite or employee benefit product up until now, but within the last few years there’s been a major push to re-frame it as an alternative to LTCI, especially for impaired-risk clients who cannot qualify for traditional LTCI.
The rationale behind using CI or CHAS (cancer, heart attack and stroke) products as alternatives to LTCI goes like this: Benefits are triggered by a dozen or more “dread diseases,” but upon closer inspection we find that many of these are the same ones suffered by the majority of our LTCI claimants. (For instance, cancer accounts for over half of all CI claims.) There may also be fewer restrictions on how one’s benefits can be spent (often a lump sum), and none of the training requirements producers associate with traditional LTCI.
Q: Should LTC planners be learning about short-term care insurance products, Medicare plans and critical illness insurance products, or should LTC planners leave knowing about those products to other types of insurance professionals? If you think LTC planners should leave knowing about those products to other folks, should LTC planners be forming new types of alliances and referral relationships with other insurance professionals? If so, what kinds of alliances and/or referral relationships?
SF: Ah, the classic question! It’s difficult to know where to draw the line in your own business. Should you focus on one product, or should you diversify? And if you diversify, which products make the cut? It’s a great selling point to be able to say you’re a specialist, but no one wants to leave money on the table, or worse, get left behind as the industry moves past you. On the other hand, you can go mad trying to be a "Jack of all Trades" (and not necessarily make more money).
In this specific situation, the products described are close enough that one specialist can handle them all: think Ear, Nose & Throat doctors. Any LTCI producer should be capable of picking up STC and CI. Training opportunities abound — the curious agent will have no trouble locating the marketing organizations who are emphasizing these alternative products in particular.
Where we continue to find thriving alliances are between LTCI specialists and financial advisors, with some agents able to support their entire practice on these referral partners. In the past (one to two decades) it was anyone’s guess what position a financial planner would take towards LTCI. Some were open-minded, while some routinely killed the sales we were making. Nowadays, most financial professionals accept LTCI’s role as part of a responsible retirement plan.
Q: You have two colleagues presenting at NAILBA this week on the topic of LTCI. Can you give us a sneak peak of some of what the presentation will cover and why it's important?
SF: Yes! Although I can’t be with them in Orlando, we’ve been on what I’ve affectionately been calling a “whistlestop tour” to help spread the word about the Society of Actuaries’ new LTC Pricing Study. Although preliminary results were first debuted at the ILTCI conference in Colorado Springs earlier this year, the data have now been peer-reviewed in anticipation of a formal write-up.
With the participation of six veteran LTC insurers, the Pricing Study sought to answer one question above all others: How stable are rates on new business being sold today? Without stealing their thunder (I want everyone to attend the session!) allow me to say the answer is tremendously reassuring.
We see this is an opportunity to bring agents back to the fold who’ve lost confidence in the industry, and to encourage carriers to take a chance on a product with a compelling amount of upside right now. Since financial professionals know they ought to recommend LTCI, but are understandably anxious to do so, those who have heard this material find their confidence has been restored.