Organizers of the recent Intercompany Long Term Care Insurance (ILTCI) Conference looked hard for speakers who had new ideas for paying for long-term care (LTC) services.
One of the speakers, Mark Dearsley of Partnership UK, talked about an old idea that’s been getting more attention lately: the use of immediate annuities, or annuities that start paying a guaranteed stream of income immediately after consumers buy them, to pay LTC bills.
The National Association of Insurance Commissioners (NAIC) set guidelines for retail single-premium immediate annuities (SPIAs) in 2001. The idea was that retirees could put the lump sums they got from selling houses or other major assets, such as family businesses, into SPIAs.
Some carriers built on that idea by offering impaired risk SPIAs — or immediate annuities designed for people who already had serious health problems. Golden Rule Insurance Company and other impaired risk SPIA issuers aimed the products at older people who were already getting LTC services and needed financing options.
Impaired risk SPIAs have been more visible in the United Kingdom in recent years than in the U.S. market.
See also: What? Impaired Risk Immediate Annuities?
For a look at a few of the things that Dearsley said about the products, based on his ILTCI Conference slide deck, and implications for U.S. LTC planners, read on.
1. The United Kingdom is facing terrible LTC planning problems.
Roughly 13 percent of the U.S. population have some kind of LTCI arrangements in place.
In the United Kingdom, private LTCI penetration peaked at less than 1 percent, according to the Association of British Insurers.
Because the vast majority of the U.K. population arrives at the point-of-need unprepared, the main focus for private insurers has to be on point-of-need solutions, Dearsley said.
See also: 5 possible cures for what ails LTCI
2. Insurers have built a healthy little U.K. care annuity market.
Partnership has been competing in that market with Friends Life and Just Retirement. It’s now in the process of merging with Just Retirement.
The three companies generated about $200 million in care annuity sales in 2014.
Issuers have been selling the products through LTC planners and through general financial advisors.
See also: Margie Barrie: Some LTCI Beats None
3. U.K. impaired risk SPIA users tend to be very old.
At Partnership, Dearsley said, the typical customer is an 87-year-old woman who pays a $150,000 premium and has a life expectancy of about four years.
4. Roughly one-third of the new U.S. LTC services users may be able to afford an impaired risk SPIA.
Partnership recently helped Genworth Financial Inc. (NYSE:GNW) introduce a care annuity in the United States.
Analyses suggest that about 35 percent of the U.S. residents who are using LTC services both need a care annuity and can afford that. That could translate into $1 billion per year in U.S. care annuity demand, Dearsley said.
5. What agents and brokers need to know about care annuities.
Gary Mettler, the “Annuity Maestro,” reported in a 2015 article for LifeHealthPro.com that impaired risk SPIAs faded from view in the United States partly because of Great Recession chaos, but partly because of underwriting problems that led to adverse selection at some of the U.S. care annuity issuers.
Care annuities are also vulnerable to consumer apathy and confusion. Partnership reported earlier this month that its sales of care annuities fell 9 percent between 2014 and 2015, to 69 million pounds. Sales recovered in the second half, but “continuing uncertainty surrounding the government’s care policy is acting as an inhibitor to growth,” the company said.
In spite of those concerns, there are fewer barriers to sale at the point of need than there are when people are younger and healthier, Dearsley said.
Marketing targets include children who see parents going into care as well as the parents, and agents have strong opportunities to get care annuity referrals from real estate agents, estate planning lawyers and other financial professionals, Dearsley said.
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