Help Lower The Average LTC Age: Offer LTC Riders
Though the average issue age for long-term care products is coming down, industry data suggests they are still heavily concentrated around retirement ages.
This begs the question: Why dont younger people buy LTC insurance, especially when theyre in better physical and cognitive health and when costs are significantly lower? And what can be done to change the situation?
Lets look at some numbers. Younger age groups spend money for other purposes. For example, in 1999, according to the Bureau of Labor Statistics, those aged 35-44 and 45-54 spent about two-thirds of after-tax income on food, housing, alcohol, clothing, transportation, entertainment and personal care products and services.
The 35-44 group spent about 9% for personal insurance and pensions including Social Security and the 45-54 group, about 10%. Health care spending represented only 3.3% for the 35-44 group and 4% for the 45-54 group. By contrast, for those age 65+, health care spending was almost double the 35-44 group averages.
Further, Americans are spending a lot. Consider:
–The average household credit card balance was $7,000, and the average household has 10 cards, according to the July 5, 2000 Wall Street Journal.
–Household debt service payments in 2000 reportedly exceeded 14% of disposable personal income.
–Catastrophic medical events are a leading cause of home foreclosures.
Debt is big time! For many families, assets and income may be insufficient to absorb most major catastrophic medical events. With consumption and debt so high, people need protection against relatively low-risk, but devastatingly high-cost, catastrophic events.
Many protect against the death of a family provider by purchasing life insurance. But what happens if that person becomes chronically ill, say from stroke or debilitating heart attack? Many producers dont yet realize that, for a relatively modest incremental cost, clients can protect against that very riskby buying a LTC acceleration rider for their life policy.
Does such a rider make sense if the client is a 40-year-old man who doesnt smoke? Is there a need for LTC at this age? Certainly! Younger people experience accidents, strokes, cancer and nearly every illness that can incapacitate seniors. But the real justification for the coverage is the low cost of the LTC rider approach.
Assume a sale of a $100,000 life policy to this 40-year-old. An LTC rider can be added for about $80 a year. This would provide a $2,000 per month benefit for four years. Of course, its not a full coverage LTC covering all of today’s nursing home costs, and it lacks inflation protection. But, at a low cost, this rider will help offset expenses of a catastrophic nature. (Note: The death benefit of the life policy reduces when LTC payments are made).
This rider coverage at least meets the need halfway. Its a beginning.
By contrast, a stand-alone quality LTC, with a $100 daily benefit for four years and including inflation protection, would cost the same 40-year-old some $700 to $800 per year. That might be a tough sale, when the typical young family is striving to handle its debt burden and the typical younger buyer is drawn to many other purchase temptations.
Producers can do much to solve the LTC problem by building these inexpensive riders into the plans for younger buyers.
Doing so helps prepare a foundation of LTC protection for the client, one that can be added to in future years. And such sales will contribute to bringing down the average age of LTC buyers, helping achieve pricing stability.
(Incidentally, adding LTC riders also has a very positive effect on persistency.)
To move in this direction, producers should avoid taking an “all or nothing” approach–i.e., presenting a first-class stand-alone LTC, complete with inflation protection and bells and whistles, but then walking away if the prospect balks. Instead, they can address client needs by presenting modified solutions such as LTC riders.
In fact, why not build LTC riders into every proposal? This differentiates the practice, improves the clients level of protection, increases persistency at the carrier, and results in greater agency income.
, FSA, MAAA, CLU, is president of Actuarial Strategies, Inc., Bloomfield, Conn. E-mail him at [email protected]
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.