Can Group And Blended Contracts Help Spark More LTC Sales?

The customer recognizes the long term care need. Companies develop a multitude of products to satisfy the LTC need. Multiple companies in the marketplace increase competition so competitively priced product is available. Theres awareness by customers that companies have developed the products.

It all seems like the beginning of a successful product life cycle and many sales success stories. But the product isnt being bought as expected. Sales have been faltering. Companies have exited the marketplace. Prices have increased.

The statistics are startling: According to Monitoring Attitudes of the Public 2004, a survey from the American Council of Life Insurers, Washington, 69% of affluent Americans “agreed that people need to protect themselves against long term care expenses.” This was consistent with 2002 findings showing 68% “felt being able to afford long-term nursing and home care was important in retirement planning.”

Who do consumers think will pay for LTC needs? In the same 2002 survey, 32% said “you or your spouse” and 21% said “long term care insurance.” So, over half the respondents felt that either self-paying or relying on LTC insurance was going to be essential to paying for LTC.

But LTC sales have been struggling. According to the 2003 Annual Executive Summary for LTC Insurance and Medicare Supplement report by LIMRA International, Windsor, Conn., there were 11% fewer individual buyers in 2003 compared with 2002. New premium decreased 7% bringing the compound annual growth rate for the 5-year period from 1998-2003 to only 4%.

Right need, wrong product? Perhaps. Certainly the demographics would indicate that LTC insurance protection should be a tremendous sales opportunity, but maybe its the product being sold and/or how it is sold?

While LTC sales and product development generally are focused on the individual marketplace, this is about to change as more companies pinpoint resources on group/worksite sales and “blended” individual policies to satisfy the LTC need. Well look at both prospects here.

Group LTC insurance. The ACLI survey indicated that 19% of individuals thought (incorrectly) that Medicare would pay for LTC needs and an additional 12% thought “health insurance” would provide the coverage. It certainly seems as if many individuals dont really understand what their group health plan or the government really will provide.

Idea: The open enrollment period for health insurance is a perfect place to discuss LTC needs. Too many times, these sessions describe how great a particular health plan is for an employee, without touching on the negatives (which are a sensitive subject, especially since group health rates keep increasing). But a group LTC sale probably would be a natural outcome of such sessions, if the presentation were modified slightly to describe what a group plan really covers, and more importantly, doesnt cover, as well as what Medicaid and Medicare cover and dont cover.

For the insurers, it would seem that the morbidity experience, which has been less than stellar on individual LTC plans, naturally would be better on larger group plans.

Of course, the icing on the cake would be the proposed above-the-line tax deduction that would allow people to get a tax break for buying LTC insurance. Or the proposal from Rep. Lee Terry, a Nebraska Republican, would also help; he has introduced legislation that would allow people to pay their LTC premiums with IRA or 401(k) accounts. If either proposal gets enacted, the public would win.

Blended individual policies. The “blended” insurance products combine life insurance with a tax-advantaged early acceleration of death benefit for those able to satisfy the usual LTC triggers (2 out of 6 activities of daily living or severe cognitive impairment).

These contracts are certainly a needs-satisfier from a customer perspective, because they enable the policyholder to become the beneficiary of his or her own life insurance policy. However, these contracts have proven to be a sales challenge. It has been very difficult to train a successful LTC producer to learn enough about life insurance to make an effective blended policy sale. At the same time, the successful life producers many times dont want to learn the nuances of the health/LTC field.

Idea: As more and more companies develop blended policies and as sales of individual LTC policies continue to decline, this problem may be rectified. But speaking as a representative of an insurer that offers blended policies on all 3 life product chassis (whole life, universal life and variable universal life), its been an uphill battle. The successful companies will be the ones that overcome this hurdle. If individual LTC sales continue to be slow, its likely that more and more LTC agents will be forced to learn about and sell these blended contractsbecause they are an alternative market.

In conclusion, the LTC marketplace continues to show tremendous promise, but the product and distribution method will need to continue to evolve to take full advantage of the opportunity.

Michael S. Pinkans, CFA, CFP, CLU, ChFC, is a registered representative and investment advisor with Equity Services Inc. and vice president of sales and promotion at National Life Insurance Company, Montpelier, Vt. His e-mail address is mpinkans@nationallife.com.


Reproduced from National Underwriter Edition, January 20, 2005. Copyright 2005 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.