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It’s a good time to be in the long-term care insurance (LTCI) business.

New policy designs can fill most any need. And, with the revolution in the way medical care is paid for and how medical care will be delivered in the future, the public’s mind is open to change, thus enabling the LTCI industry to enter into a new growth phase, with big consequences for the channels of distribution.

Product evolution
The life insurance industry has had more than 200 years to evolve; LTCI products, less than 40.

The first phase was the pre-1996 “laissez-faire” era of nursing home insurance.

This was before the Health Insurance Portability and Accountability Act of 1996 (HIPAA). In HIPAA, the traditional definitions for defining the six ADLs (activities of daily living) and Alzheimer’s benefit triggers were standardized.

The second phase extended from 1996 to 2010 and focused primarily on development of policy variations within the basic model. Despite the industry’s exhortations and the benefit story we preached, there was only marginal consumer acceptance.

The third phase was inspired by designs permitted under the changes in the tax code made by the Pension Protection Act of 2006 (PPA). Insurers began introducing the innovative products allowed by the PPA changes in 2010.


Today, we have three broad categories of products to solve long-term care (LTC) planning needs and satisfy consumer demand.

1. Traditional LTC, with or without inflation protection, use-it-or-lose-it benefits, and the possibility of tax benefits. This original foundation product provides pure LTC risk management. It seems to have hit its upper end of market acceptance.

2. Hybrid LTC as an alternative to a CD or asset-linked LTC product. In these products, built on a life insurance chassis, the “return” is LTC benefits, not a low-interest yield for the consumer. The customer is guaranteed to get money back in one of three ways: through generous LTC benefits (usually a nice multiple of the original premium); through the 100 percent liquidity of the cash surrender value of the policy; or through a low death benefit that is at least the same amount as the total premiums.

3. Hybrid LTC with a life insurance kicker. Actually, this model consists of life insurance combined with additional triggers that make the accelerated death benefit available for LTC needs. One advantage of using this type of hybrid LTC policy is the number of flexible premium payment schedules. This is an efficient way of building a known specified LTC benefit into a life insurance policy.

After 2014
With the full implementation of Obamacare in 2014, we may see even more product introductions and channel disruptions.

The Obamacare health-care exchanges will be a new way for Americans to buy health insurance outside of the employer-based private insurance plan system.

Federal law encourages these exchanges to enroll consumers through non-commissioned “navigators,” or salaried employees.

The exchanges can form alliances with sellers of voluntary vision and LTCI products.

The exchange alliances pose a major threat to the current agent distribution system.

Certainly, health insurance companies, LTCI carriers and companies selling Medicare supplement policies will design new products that use the new exchanges as conduits to satisfy the public’s growing need to manage long-term chronic care risk. 

The delivery of health care continues to evolve. New products will create new sales distribution networks.

Ten years ago, the bank channel and the stock broker-advisor had no relationship to LTC planning products. Today, LTC planning involves every corner of the financial services profession.

Consumer demand is just one ingredient in the successful evolution and maturity of a market. The elements are now aligned to grow our industry in ways that reward the nimble. Are you ready?

Next Month: New LTCI applications for the professional LTCI agent.

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