Science has long sought to explain exactly how we came to roam this earth. The “Big Bang” theory says an explosion created the world we know today, and most of what we see around us is the product of subsequent and continuing evolution.
The world of long-term care, and the business of funding such care, may still be in its formative stage. In comparison to other financial products, long-term care insurance (LTCI) policies are very young, with the first appearing just a few decades ago. It’s not clear whether LTCI is in the midst of an explosion or evolution. But it is clear that numerous recent regulatory changes and economic and social factors are shaping a new environment for long-term care, and consumers are responding.
A shift from traditional health-based long-term care to asset-based products has been underway for the past several years. These products are sometimes called combo or hybrid products. They use the structure of life insurance or annuities, but if needed, the policy holder or annuitant can access funds for long-term care expenses.
According to LIMRA, sales of combination products were up 62% in 2010, and that was on top of a double-digit increase in 2009. In fact, life insurance-based LTC products, specifically, are riding a 30% annual growth trend that dates back to 2007. While this side of the industry trends steeply up, health-based LTCI continues to struggle. Providers are restructuring these products, imposing dramatic rate increases or even abandoning them altogether.
THE ATTRACTIONS OF ASSET-BASED LTCI
Asset-based LTC products primarily attract consumers because, with both life insurance and annuity products, the full death benefit is preserved to be passed along to beneficiaries if long-term care is never needed. It is not use-it-or-lose it protection like the health-based products. And if withdrawals are necessary for qualifying long-term care expenses, they can be taken income tax-free.
The permanent nature of the products is definitely the key value proposition and what clients appreciate most. But beyond this, three other main factors are contributing to the evolution of the long-term market toward asset-based products: accessibility, recognition and acceptance.
- Accessibility: Of course, I recommend to every client that they consider purchasing long-term care protection if they can fit it into their cash-flow budget. As more baby boomers reach retirement age, it only makes sense that more will need long-term care at some point. What is more common now, however, is the ability of clients to afford such coverage. A majority of my clients are retirees, so they are fortunate to have retirement savings that can be rolled over into LTC products. If you can convince a client to allow his or her entire portfolio of assets to be evaluated, chances are that some portion of the portfolio not needed for income can be used for long-term care protection.