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Life Health > Life Insurance

LTC Saw Some 'Out-Of-The-Box' Thinking But Change Came Slowly

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In 2009 there has been a relative flurry of new product innovation and development in long term care insurance.

Some of the innovation was motivated by the dramatic repricing in the industry. But it came at the pace of a tortoise, no matter how nimble the insurer. That’s because the business has a long lead time to market, as products, premiums and marketing materials must wind their way through each state’s insurance department.

Repricing made some of the most popular plan designs unaffordable, driving some “out-of-the-box” thinking and new product innovation.

Consider: Lifetime benefit policies have never been inexpensive, but now they are prohibitively expensive for many. One response to this new reality has been an emphasis on, and flight to, shared care policies, where two insureds share a benefit (presumably larger than they could afford individually).

Another example: Built-in inflation protection has always been a very expensive component of LTC insurance. It makes an otherwise easily affordable policy sometimes unaffordable. This is compounded (pun intended) by the repricing of the last few years.

So, how has the industry tried to make LTC policies more affordable, while still maintaining the integrity of the value proposition to the consumer? One way seen in 2009 was to re-engineer the architecture of a policy. Zap–no daily benefit. Be gone, benefit period. Instead, the insured purchases a true pool of money, more like a policy maximum on a health insurance policy. Buy a big enough pool and inflation protection can become less important.

Certainly consumers can take solace in having, say, a $300,000 pool of money dedicated to LTC costs, the same way that they may have a $300,000 face amount in life insurance.

Of course, as purchase age drops, whether inflation is purchased through a rider or built into the pool of money, there’s no getting around the fact that the future purchasing power of a particular policy must be understood.

This awareness raised questions about the emerging role of the agent. Is that role to leave the client better off than he or she found them? Is something always better than nothing? What is good enough, and what is simply not good enough? These are questions with which companies, agents, and consumers are grappling at year end.

Other product innovations were motivated by the incredible amount of legislation directly impacting LTC insurance. For instance, the national expansion of the LTC Partnership Program kept insurers busy meeting each state’s own schedule for program adoption and policy approval. Would-be Partnership licensed agents were busy, too, jumping through certification hoops and figuring out how to integrate Partnership into their practice.

Coming on the heels of the expansion of the Partnership program was preparation for the Pension Protection Act. Starting January 1, 2010, the PPA will allow money already in non-qualified annuities and life insurance policies to be used on a tax-free basis to pay for qualified LTC insurance.

No product innovation will be required here, if the agent uses a partial 1035 exchange out of the annuity or life policy to fund stand-alone LTC. But lots of product innovation will probably be needed, since every insurer that doesn’t offer life and annuity policyholders the ability to add a LTC rider to existing policies will be in danger of losing some or all of the money in those contracts.

So, in 2009, whether coming from an offensive or defensive position, insurers prepared to roll out combo products–life and annuity policies with LTC riders–to their portfolios. It is likely that many companies that have never written a stand-alone LTC policy will offer combo policies, too.

Companies can’t afford not to play in this market–in case PPA turns into a game-changer.

Other product innovations in 2009 involved search of the “killer app” that prospects will find irresistible. Think Blackberry, then iPhone–the “gotta have” products. Where LTC insurance is concerned, the industry’s killer app was a matter of “less than more.” That is, offer less moving parts and less perceived restrictions on the way benefits are collected. One example is the use of shorter elimination periods (more policy money, quicker). Cash benefit policies fit here, too, whether partial or as the guts of the policy. The goal was to give the people what they want, or at least none of what they don’t want.

As for the future, the spur for more product innovation is probably in the hands of Congress. More legislation (such as the Community Living Assistance Services and Support Act) will spark more innovation.

Marilee Kern Driscoll, CLU, is a Plymouth, Mass. speaker, consultant and writer specializing in reaching age 50+ consumers and their advisors. Her e-mail is [email protected].


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