The standalone long-term care insurance market is suffering, and according to the Society of Actuaries, individual policy sales have been declining since 2003. However, the increase in hybrid plan and long-term care rider sales may actually have more seniors covered than ever before.
“I actually believe more people are covered now, not fewer,” said Steve Schwartz, president of HUB International Northeast’s executive benefits division. “Maybe 75 percent of the cash value policies we’re selling include a long-term care rider.” In fact, now that many companies are adding chronic care riders to their term life insurance plans, says Schwartz, hybrid policies are more available than ever.
The drop in standalone sales is likely due to a combination of rising premiums and declining perceptions of value among advisers and their clients. “Long-term care wasn’t priced correctly when it came on the scene about 30 years ago,” said John Bucsek, MetLife Solutions Group managing director. “The industry eventually had to re-price even existing contracts, and that spooked both advisers and clients.”
Despite the poor state of the standalone market, the availability of hybrid plans and widespread recognition of the need for long-term care are encouraging more Americans to cover themselves. “I think a large segment of the population certainly sees they’ll need some form of long-term care,” said Dave Beck, partner at Egan, Berge and Weiner, LLC. “It’s a growing number of people, and the reality is setting in that as life expectancy continues to soar, you’ll likely become a burden if you’re not covered.”
The need for long-term care is particularly common among Baby Boomers, who are currently turning 65 at a rate of roughly 8,000 per day according to the AARP. However, 50 to 55 is a better range for most pre-retirees to purchase a policy or tack on a rider. “At that point it becomes pretty economically feasible for most, but if you wait, your premiums can rise rapidly,” said Schwartz.
For advisers calculating the costs and benefits of a given long-term care policy, Schwartz also notes that women are typically on claim for 44 months, while men usually collect for 40. For seniors suffering from Alzheimer’s or other cognitive conditions, claims last an average of 12 months longer
For retirees and pre-retirees who don’t want to gamble on today’s unpopular standalone plans, one of the best options is a hybrid life insurance policy that allows buyers to tap into their death benefits in the event they need long-term care. “You might leave less to your heirs, but these plans ensure you won’t ‘waste’ the money, either,” said Bucsek. Other options include annuities, return of premium riders and for wealthy clients, single premium long-term care insurance plans.
Both standalone and hybrid plans may also include a variety of add-ons, some safer bets than others. Shared care policies allow married couples to pool their benefits, splitting the total payouts unequally if necessary; premium waivers can make it financially feasible for a spouse to leave work when the other requires a caretaker; and home care riders can ensure that up to 100 percent of a policy’s payout can be allotted to in-home care, rather than assisted living or nursing homes.
A more controversial add-on is the cost of living adjustment (COLA), an inflation hedge which may not pan out well for clients who buy their policies close to retirement. “If someone buys a $5,000 per month benefit and gets the COLA, the premium could rise 50 to 60 percent,” said Schwartz. “You could take that additional money and just buy a much bigger policy that will cover you even better given current inflation rates.”
Given these alternatives to expensive and risky standalone plans, the long-term care insurance market as a whole seems to be holding steady. “I think the hybrid policies will continue to be viable from insurance companies’ standpoints,” said Schwartz. “Medical technology is keeping people alive longer, actuaries now have a few decades of data to work with and consumers are now protected from future premium increases.”