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Help Clients Avoid the Double-Edged Risk of Waiting

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Long-term care coverage, once thought to be for “older consumers”, has been attracting younger buyers over the last 15 years.

The baby boomers are the first generation to be hit hard with the LTC needs of parents – and their eyes are opening.

The change in the average age of a person purchasing LTC coverage barely moved between 1990 (age 68) and 2000 (age 67), according to the SCAN Foundation. But, as baby boomers started nearing retirement, movement in the age of purchasers began a move downward, and is now at age 57, according to the American Association for Long Term Care Insurance.

— (Related on ThinkAdvisor: Under the Hood: Life Expectancy and Financial Planning)

The LTC industry has changed as well. Insurance companies have learned more with time and claims experience, and they are getting better at underwriting and avoiding risks that impact a company’s bottom line. While the percentage of LTC applicant declines have held steady for persons age 70 and older, the percentage of declines for younger applicants is increasing. And while declines are still relatively low for people aged 69 and younger, the decline rate for applicants below age 50 has surprisingly doubled since 20072. Clients waiting to purchase LTC “until later” will undoubtedly pay a higher price for the policy, but they also risk an increase in the chance they won’t qualify for a policy at all.

A Change in Linked-Benefit LTC Policies

People wanting the features of traditional LTC policies without the risk that comes with such a purchase may have an interest in linked-benefit LTC coverage. Fortunately for consumers, another industry change has come with linked-benefit LTC products. These policies were once marketed as a single premium asset based repositioning of an asset. The single premium purchased a nice amount of LTC coverage; but if never needed for LTC benefits – the policy would pay a death benefit at least equal to the premium amount that was paid. But an extended low interest rate environment has left insurance companies weary of accepting an abundance of single premiums, thus companies have opened up the opportunity for consumers to purchase linked-benefit policies with premium schedules of up to 10 years – and with monthly premium payments!

Linked-Benefit LTC Coverage: The “Third Car” Payment

These new premium payment opportunities open a new door for younger clients who are high earners. It is not uncommon for individuals who are younger to have most of their assets tied up in qualified funds such as 401(k) accounts, IRAs, etc. Thus they have no sizable liquid non-qualified or after tax asset that can be repositioned. Yet, these high earners may have excess monthly income that could be devoted to a premium payment for a linked benefit LTC policy.

One way to position such a purchase is to use an analogy of purchasing a third luxury car.

  • A “car” paid for with monthly payments and paid up in ten years.

  • A “car” that won’t lose value.

  • And “car” that will provide “good mileage” if life’s journey includes the need for long-term care services.

Case Study

Our hypothetical client is Henry, who is 50 years old, married, in good health and does not smoke. He recently had the experience of juggling his own responsibilities of job and family with his mother’s need for long-term care assistance, which also meant providing financial help.

Decline Rates for Traditional LTC Policies




Below age 50




Ages 50-59




Ages 60-69




Ages 70-79




Sources: The SCAN Foundation and AALTCI.

Henry wants to make sure his children are not faced with the same challenges, so he is looking for good LTC coverage that makes sense for his budget. He likes the idea of a cash indemnity policy so there are no restrictions on how he uses his LTC monthly benefits. Henry earns an ample income and can easily devote a payment towards the equivalent of a “luxury car.”

Henry will purchase a linked-benefit cash indemnity policy:

  • He will start with a monthly LTC benefit of $2500 a month – with a total LTC benefit pool of $204,061.

  • He will add 5% compound inflation so coverage grows over time.

  • His monthly premium will be $606 a month for 10 years, at which time he will have a paid-up policy.

  • Premium payments over 10 years will total $72,720.

  • At age 85, Henry will have a monthly LTC benefit of $13,134 a month with a total available amount for LTC benefits of $1,072,002.

And if Henry never needs LTC services, or only uses a minimum amount of LTC benefits, a death benefit will be paid to his beneficiaries, so there is no “use it or lose it” risk. As long as Henry pays his premium payments as planned, his premium is guaranteed to never increase, and his policy benefits are guaranteed.

Henry, like the majority of individuals purchasing LTC coverage, wants to protect his assets for his spouse and heirs, and wants to avoid being dependent on loved ones if possible. The purchase of this linked benefit policy is affordable paid with 10 annual payments and makes sense for Henry’s financial strategy.

Of course, when helping a consumer choose a product, make sure that life insurance needs are covered. Because personal situations may change (i.e., marriage, birth of a child or job promotion), so can life insurance and long-term care insurance needs.

Care should be taken to ensure these strategies and products are suitable. Associated costs, as well as personal and financial objectives, time horizons, and risk tolerance should all be weighed before purchasing insurance.

Make sure the client understands that life insurance, and long-term care coverage linked to life insurance, has fees and charges associated with it that include: costs of insurance which varies based on characteristics of the insured such as gender, tobacco use, health and age; and additional charges for riders that customize a policy to fit individual needs.

The client also must understand that approval for coverage under the policy and attached LTC riders is subject to underwriting and may require a medical exam.

— Read On NAIFA’s plate: tax reform, SEC rule, state retirement plans on ThinkAdvisor.