Planning for a secure retirement involves more than just investing hard-earned dollars into a 401(k) plan. It requires a hard look at the gaps in each client's insurance coverage.
Nearly three decades ago, 401(k) plans were relatively unknown. Once consumers understood the advantages of investing their nest egg with some pre-tax incentives, however, these plans became highly successful. 
Long term care insurance is now in the same boat.
Education was key to the 401(k) success story, and LTC insurance will require the same focused strategy. This article will explore trends in the market, with data gathered from the individual and group segments and what it means to consumers. This may help you as you guide clients in making an educated and informed decision about this insurance coverage.
Two distinct products are available in the industry today. (See Table 1.)
Purchasing LTC insurance is an important decision because it requires a commitment for many years. Whether purchasing through work or through a financial planner, here are the questions the client will need help answering:
1. How much coverage should I buy?
2. How long should coverage last?
3. Should I purchase inflation protection?
Not only is LTC insurance a complex product, but the options can also be daunting. The following facts should help answer some of these questions.
Amount of coverage
In 2009, the average cost of one year's stay in a private room of a nursing home was a staggering $79,935 (or $219 per day), according to the MetLife Mature Market Institute. That's 54% more than the real median household income in the United States ($50,233), as reported by the U.S. Census Bureau. Yet data our company collected in 2007 indicate that the majority of consumers are not buying enough coverage to fully pay for the cost of care, as demonstrated below. (See Table 2.)
As can be seen, a third of employees who bought through an employer-sponsored plan were purchasing less than $100 a day in coverage. This trend could be largely due to the number of employers contributing to a small base plan (typically less than $100 a day) to encourage employees to buy additional coverage.
Then again, with the massive education efforts from the government and private sectors about long term care, the trend is now shifting, and consumers are now more apt to buy higher amounts of coverage. At $219 a day now, most people are starting to appreciate the soaring cost of care they could have to pay out of pocket down the road.
Length of coverage
The average length of stay in a nursing home is about 2.4 years, according to the National Center for Health Statistics. It's highly probable that both individual and group buyers are considering this fact when determining their policy's duration of coverage (see Table 3); hence, the high percentage of elections for coverage with 2-4 years' duration. 
Many may not understand the actual duration of care is typically much longer in total than the benefits periods they are selecting. As the National Center for Health Statistics reports, average care durations are 3 years at home, 2.5 to 3 years in an assisted living facility, and 2.4 years in a nursing home. Not only that, but of the 12 million Americans receiving custodial care today, only 10% are receiving it in a nursing home.
Another trend reflected in Table 3 is that individual consumers buy more lifetime policies than do group buyers. The primary reason is that not all group plans offer lifetime durations as an option.
It's not surprising that the number of group buyers who elect the 5-10 years' benefit duration is also high. Based on further research by LTC Solutions, this trend can be attributed to the fact that many employers only offer the 5-year option as the best value per dollar. Subsequently, they do not present any other durations for employees to elect.
Inflation protection
There are a number of riders available to consumers of LTC insurance to keep their benefit dollars on a par with the rising cost of care. Individual coverage tends to offer numerous inflation options, while the group market can offer one, two or possibly three options. 
Here are some trends we're seeing as they pertain to inflation protection choices:
o Consumer Price Index (CPI) has had a limited introduction in the group market, although it's currently available in the individual market.
o A simple inflation option is rarely offered in the group market. That's why only 2% of employees choose it (see Table 4).
o When employers offer inflation protection options, it is typically the automatic compound inflation (ACI) feature.
o Future purchase option (FPO) (also referred to as no inflation protection) is a default for the group market. This option allows consumers to purchase additional coverage periodically–typically every 2-3 years–to keep pace with the rising cost of care. The premiums would change accordingly, should the policyholder chooses to exercise this option.
In the individual market, however, most LTC insurance producers will advise their clients to buy the ACI feature, thereby contributing to the high percentage of buyers with this rider. It allows the benefits to increase by 5% every year based on the amount from the previous year. Not until recently did groups offer ACI, and now have 16% of consumers buying it as part of their policy.
Despite today's economic downturn, 401(k) plans are still an effective way to save for retirement because of their favorable tax treatments. LTC insurance protects that retirement. Consider it insurance for your clients' nest eggs.
Christine McCullugh is the president and founder of LTC Solutions Inc., Redmond, Wash., a firm specializing in group long term care insurance. Her e-mail address is cmccullugh@ltc-solutions.com.
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