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Life Health > Life Insurance > Term Insurance

The Future of LTCI

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From the October 2009 Issue of Senior Market Advisor Magazine

Here comes Uncle Sam
The late Senator Edward Kennedy’s Community Living Assistance Services and Supports (CLASS) Act of 2009, which would create an LTCI program for adults who become functionally disabled, is on everyone’s radar. Jesse Slome, executive director of the American Association for Long-Term Care Insurance in Westlake Village, Calif., believes the act will increase inertia among prospective LTCI buyers who will use the act’s potential passage to delay purchasing private policies. “In the short term, it will give millions of people a reason not to act,” says Slome. “That will chase the incidental agent or broker out of the marketplace. The only ones who will remain are specialists because the marketplace will be that much smaller.”

Nancy Morith, CLU, CASL, shares Slome’s concerns that the CLASS Act could cause consumers to put off LTCI decisions. Morith, an adjunct professor of insurance at the American College and owner of the N.P. Morith Inc. insurance brokerage in Princeton, N.J., notes that approximately two dozen states have implemented partnership programs that promote the insureds’ participation in the LTC coverage process. The act could cause confusion over which coverage a buyer should consider, she says. “We had, on the one hand, the partnerships saying we can’t, as a state or federal government, take care of this (expense),” says Morith. “On the other hand, now, we have the possibility of a public program, so everybody has just stopped in their tracks.”

From a longer-term perspective, Slome believes LTCI will become positioned as another government entitlement program, similar to Medicare supplement insurance. As the initial confusion over the government’s coverage clears up, he says, it will be easier for producers to position traditional LTCI against a federal plan. Eileen Tell, senior vice president with the Long Term Care Group in Natick, Mass., agrees that a CLASS-type public solution might benefit the industry in the long run because a public program would provide widespread consumer education and awareness of the LTC-problem. Additionally, if a public program provides a limited benefit–such as the CLASS program’s current configuration–consumers might look to supplement or elect not to participate in that program, Tell notes. “People would evaluate the cost of buying into that program and buying something to supplement it or just going with a straight private product,” she says. “I think if it passes, you’ll see private products designed to compete and complement the public program more effectively.”

Keep it simple

The movement to simplify LTCI is not new but sources believe it will gain momentum in the coming years. Gene Cutler, a partner with LTC Financial Partners in Manhasset, N.Y., has observed that several carriers are developing plans that are easier for agents to present and consumers to understand. He cites a plan from John Hancock as an example. “It’s a leading-edge product and what it simply does is give you four or five variables to choose from,” says Cutler. “The four basic fundamentals of the policy remain per diem, deductibles, duration and how to handle inflation. Metropolitan Life has a similar platform as well and I know Prudential does. You’ve got so many other options on these plans. For many people, having to grasp all of them means putting off making a decision.”

Beth Ludden, senior vice president for LTC product development at Genworth Financial, points to her company’s Cornerstone Advantage product as an example of product simplification. The policy uses deductibles instead of elimination periods and incorporates the concept of co-insurance because those are terms and features with which agents and consumers are familiar. “Instead of having so many EP days and then having the benefits paid out in weeks, days or months of maximum coverage, we kept the conversation around dollars,” says Ludden. “So it’s a dollar deductible, a daily dollar benefit and the maximum that you choose is a dollar maximum. For example, if you wanted to buy $150,000 of long term care insurance, that would be what you would pick. We were trying to build the comfort level with agents and with consumers in understanding how many dollars they will have for their long term care event.”

Automobiles aren’t the only hybrids in the news: Hybrid insurance policies should also gain traction when tax law revisions take effect in 2010. Currently, the portion of the hybrid annuity or life contract that pays for the LTCI premium is treated as a partial surrender and is taxed as ordinary income. That requires the insurer to issue a 1099 to the policy holder; the new regs eliminate that hassle. “As of 2010, that piece of premium coming out to pay for the long term care coverage is tax-free,” says Ludden. “While it’s not a lot and it’s probably unlikely to throw somebody into a different tax bracket, it’s certainly an inconvenience all the way around. I think it has been one of those things that cause producers to stay away from the product. That (taxable income) goes away in 2010.”

Ludden believes the hybrids will work well for clients who declined to purchase LTCI but need the coverage and have a sufficient amount of assets to reposition in the hybrid product. Slome notes that the average asset-based life product has a premium of approximately $70,000, which restricts the number of prospective buyers. For those buyers who qualify, however, the products can be a good fit. “They are perfect for a segment of the marketplace that has that kind of idle cash sitting around in some other investment vehicle but wants to have some long term care planning,” says Slome. “As one or two providers start to experience some success, I believe you will start to see more of the major annuity players come into the marketplace and you will see very aggressive marketing that will change the discussion.”


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