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Life Health > Long-Term Care Planning

The Rising Tide Of Shared Care LTC Sales

By Claude Thau

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Despite declining sales in the overall long term care insurance industry for several years, shared care LTC sales are increasing rapidly, and this is likely to continue.

In the individual LTC market, for instance, limited benefit period LTC insurance sales in 2005 were 15% to 20% more likely to include shared care than in 2004, according to the Tillinghast 2006 Individual LTCi Survey. And, approximately one-third of eligible individual LTC policies issued in 2005 included shared care provisions.

What is the appeal?

Shared care provisions are available to married couples purchasing LTC policies. Under such provisions, when one spouse uses up all of his or her benefits, that spouse can then access the other spouse’s benefits. Also, if one spouse dies, his or her remaining benefit period gets added to the surviving spouse’s coverage limit.

Thus, if each spouse buys a five-year benefit period, including shared care, the two have 10 years of coverage to share between them. If one spouse uses nine years of benefits, one year of benefits is left for the other spouse.

Some carriers have created alternative shared care designs to assure that neither spouse leaves the other without coverage:

In one alternative, each insured must leave at least two years of benefits for his or her spouse. In the above example, benefits for the first spouse would be cut off after eight years so that two years of coverage would be preserved for the other spouse.

Another alternative provides each spouse with his or her own benefit pool, and the shared care provision adds a separate shared benefit pool. In the example above, each spouse would have his or her own five-year benefit period, and a third five-year benefit period would be available on a shared basis. Thus, if one spouse used up nine years of benefits, six years would be left for the other spouse.

Some points to keep in mind: Shared care is not applicable to policies with a lifetime benefit period; a lifetime benefit cannot run out, so the policyholder would have no need to dip into the spouse’s policy. Shared care is also not available when a single person or only one spouse buys coverage since there is no one with which to share coverage.

Shared care is available, however, on limited benefit period policies issued to couples who buy essentially matching coverage.

LTC is a complicated product that can be hard for consumers to understand. However, insurers have found that most consumers are quickly able to understand the concept of shared care. What’s more, it makes sense to them that they should be able to use their spouse’s benefit.

Consequently, when insurance brokers recommend shared care, consumers generally react positively.

The increase in shared care sales can be attributed to a number of factors:

o More companies are offering shared care. For instance, the feature first appeared about 10 years ago but now 60% of companies participating in the 2006 individual LTC survey mentioned earlier say they offer shared care with their individual LTC policies.

o Shared care has been slower to expand to the group market. However, in another 2006 Tillinghast survey–this time of the group LTC insurance market–50% of companies surveyed say they offer shared care. Given the feature’s success in the individual market, its growth in the group market can be expected.

o Shared care allows people to lower their LTC insurance outlays. They can buy limited benefit period policies with shared care provisions instead of more expensive lifetime benefit period policies.

o Sales of shared care will be stimulated by a decline in sales of lifetime benefit period policies. In 2005, 26% of individual LTC sales included a lifetime benefit period, according to Tillinghast’s 2006 individual LTC survey. That is down from 33% of sales in 2004. However, we believe many of the 2005 lifetime benefit period policies were issued as part of “fire sales” by brokers urging purchase of lifetime benefit LTC in advance of anticipated rate increases. Following introduction of these rate increases (which are larger for lifetime benefit period policies than for limited benefit period policies), the percentage of lifetime benefit sales will likely continue to decline and be partially replaced by shared care sales.

o Also, the vast majority of state LTC Partnership policies have limited benefit periods. As Partnership programs expand beyond the current four states, the proportion of limited benefit period plans should increase, resulting in more opportunities for shared care sales.

In sum, shared care is a design feature that has already become a significant factor in LTC sales. It will increase in importance in the future.

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