Though seen as indispensable by most planning experts, long term care insurance has seen tepid sales over the past few years–a situation influenced in many cases by industrial-strength cost increases in what are guaranteed renewable but not guaranteed cost products.
Sales in life insurance and annuities that include LTC benefit provisions or riders have been rather flat, as well. However, in the last nine months, a fair amount of activity has occurred in these vehicles. This article looks at the trend, both generally and in the context of variable product offerings.
Much has been written about the need for LTC insurance, its benefits for older Americans and the “use it or lose it” aspect of stand-alone LTC policies. This has led to the use of LTC in life insurance.
In a properly structured life policy, LTC amounts paid out as “acceleration” or nonacceleration of the benefits can be received income tax-free. It’s a pretty simple construction. The client buys life insurance to satisfy death benefit needs and, if necessary, to have access to those funds earlier for care needs. Furthermore, if a client buys LTC in a variable universal life contract at an early age, the costs can be nominal. Such VULs also can have significant benefit growth in the life benefit amount, naturally leading to growth in the LTC benefit. While not a perfect match with inflation, these higher amounts will help cover inflation-driven cost increases.
The sale of life insurance, and VUL in particular, is generally a complex transaction and unnecessarily so. The trend toward more streamlined (I hesitate to say simplified, although some are) underwriting structures will continue and even accelerate, and will enable the sale to be made faster and more effortlessly.
Such simplification has been one factor in the renewed interest in such offerings, including on the LTC side.
One challenge addressed successfully by a handful of companies is bifurcation of distribution into life, annuity and LTC camps. A common explanation is that one has to be an LTC specialist to sell LTC insurance, so life practitioners don’t sell LTC. However, such specialization does not seem to be essential. Here is why:
A per-diem plan, which provides LTC benefits like a daily or monthly stipend, will largely eliminate the complexities ordinarily faced in determining whether benefits are covered (under stand-alone LTC plans, for instance). A consumer wouldn’t ordinarily see the insurer side of those complexities, but without a simpler payment structure (i.e., per diem), the insured or family would have to deal with significant amounts of paperwork.