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What LTCI can learn from life insurance

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After decades of observation, it seems like long-term care insurance is one of the toughest nuts to crack. Not just from a selling point of view, but also from a manufacturer’s point of view. So many carriers are exiting the business — either altogether or in fits and starts — because the numbers are not working out to be both affordable and profitable over the long term.

Recently, I thought of a new question: are we hurting ourselves by focusing so much on the retiree market? According to the American Association for Long-Term Care Insurance, more than 70 percent of applicants in 2012 were over the age of 55. Issue ages of many LTCI products don’t even go below 40.

Too close to claim?

Think about it. Older people are closest to claim time, with each passing year bringing the potential claim closer. According to Wikipedia, 60 percent of people over the age of 65 are going to have a need for long-term care at some point in the future.

That doesn’t give an insurance pool much time to reserve for that risk. No wonder LTCI is so hard to price.

If you consider what is happening with the Affordable Care Act and how the math is (or isn’t) working there, what can we learn? Costs don’t get more affordable when you bring more people who are closer to claim time into the pool. It’s that simple.

But why is it common to urge 30- and 40-somethings to buy life insurance, even when they are statistically so far from claim time? It’s because even though the chances are remote, the hardship that comes from it is significant, and people generally don’t want to leave their loved ones in a financial mess on top of an emotional one. And some products offer living benefits as well.

Why doesn’t this apply to long-term care insurance too? Like death, the need could arise at any time.

If you take the life insurance parallel a step further, think about the financial hardship that comes from losing a paycheck and needing to provide extended care at home or in a facility and having it occur at a time in life when there is no nest egg built up yet? Yikes. It’s a financial triple whammy, and nobody died.

Who’s your new BFF?

What other factors could make LTCI more appropriate for younger people? Consider the growing number of households that are childless by choice. According to a Huffington Post article this August, 19 percent of women ages 40-44 are childless, half of those by choice. What’s that got to do with long-term care?

It means that being a burden on your children is not even an option.

I can personally relate to this. I bought my BFFLTCI (text code for best friend long-term care insurance) at 39. This was partly because industry experience made me aware, but more importantly, because I was one of those women who did not have that option.

While all of these reasons may give us the rationale for selling younger, will today’s consumer go for it? Not without some innovation muscle. John Timmerberg, LTC expert at Swiss Re, made a good observation:

“If young people are to buy long-term care insurance, we need to give them more than just long-term care insurance.”

With longevity increasing, it stands to reason that the odds of needing long-term care sometime in the future are greater than dying before dependents are financially secure. That was not the case when whole life insurance was an innovation.

See also: You might live to 100. Will your money?

If you accept that notion, is it time to start thinking more about solutions that cover multiple needs, including savings, but anchor around the risk that’s more likely to occur?

While combination products exist today, the anchor point is still life insurance. What would it look like if we were to flip the anchor point to long-term care?

Cash value LTCI? Whole health insurance? LTCI with paid-up additions?

If more young people were in the LTCI pool, would life get better? Ideas welcome.

For more from Maria Ferrante-Schepis, see:

Industry reinvention: Horror story or opportunity?

Flipping the awareness paradigm

The high-net-worth epic fail: Gen Y’s pink slip


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