With LTC insurance sales down in 2006, here's what some are doing to pick up the pace.
When millionaires tell Naples, Fla., investment
advisor Brant Keller that they don't need long-term-care insurance,
they better be prepared to argue a little. While the president of
Financial Advisor Consultants LLC sells no insurance himself, and
collects no commissions on the policies clients buy, as a fee-only
advisor he likes to show his clients what the costs of long-term care
will do to their million-dollar estates if they become ill.
It's usually an ah-ha moment all around. "We had a couple recently, in their seventies, whose total net worth is around $5 million. This is the typical client who says, 'I don't need long-term-care insurance,'" Keller says. "So we ran their cash flows to show them what their costs would be if they both needed nursing home care." They bought insurance, as do 60% of Keller's clients. "Smart decisions are made using smaller dollars to protect larger dollars," says Keller, who thinks LTC policies are even more important for couples in the $1 million range, where the illness of one partner couple wipe out an entire nest egg.
Keller is part of a select cadre of advisors who make sure that all of their clients understand and have the option of buying LTC insurance. Keller's reasoning is simple: If an advisor's job is to protect and grow clients' wealth, all the investment prowess in the world won't make up for the havoc an uninsured long-term illness will play on a client's portfolio. "We've believed for years that long-term-care insurance needs to be part of the discussion," Keller says.
That mindset, however, has not made it into the mainstream. In fact, overall sales of LTC insurance declined some 8% industrywide last year, according to the Life Insurance Marketing and Research Association (LIMRA.com). It's also worth noting that LIMRA found sales declined a total of 9% over the past five years. That contraction took place despite the fact that some insurers are significantly growing their LTC insurance business.
While news of the shrinking long-term-care insurance market can sound pretty dire, in actuality the top two writers of LTC policies-Genworth Financial and John Hancock-saw sales increase 20% or more, says Jesse Slome, executive director of the American Association of Long Term Care Insurance. Other companies such as Mutual of Omaha saw sales grow 50%.
Still, the potential market for LTC insurance remains virtually untapped, with the Center for Retirement Research estimating that some 91% of Americans over the age of 55 do not have coverage. Only eight million people had LTC insurance as of 2006. Key players like Slome hope that new product designs and a growing exposure to long-term-care expenses will help stimulate sales.
Still, one reason for some buyer reticence, advisors say, is escalating costs. Despite flagging sales, industry premiums grew to $7.7 billion in 2006 and individual premiums rose some 3% last year, and have risen some 30% over the past five years. On average, LTC insurance buyers paid about $2,043 in first-year premiums last year, although LIMRA found that there was a wide gap in possible first-year costs depending on coverages, ranging from $860 to $3,500.
While some companies are pulling out of the LTC insurance market entirely, companies such as Genworth, which now has almost 13% of the LTC insurance market with $1.39 billion in annual premiums and more than 873,000 policies in force, have made their mark by investing heavily in distribution and the education of advisors, says Colleen Goldhammer, senior vice president of long-term-care sales at Genworth. "Over the past five years we've made a strategic investment in our distribution partners and have focused on clearly understanding producers' needs," Goldhammer says. "We believe that education and awareness about the need for long-term-care planning is critical for financial advisors and their clients and that long-term care should be included as part of every responsible financial and retirement planning decision."
To help advisors and others who need resources, Genworth has created a 120-member team of long-term-care planning specialists who can provide localized, retail point-of-sale support and even do client seminars and assisted sales. "We have designed and make available a variety of point-of-sale tools to make it easier for producers to do business, including an e-application and an electronic short-form application that allows us to complete the application for advisors," Goldhammer says. "Our philosophy is that by delivering a solutions-based, educational approach to long-term-care planning, and making it easier to do business with us, planners and insurance professionals will find it easier to make long-term-care insurance part of their ongoing business practice."
Executives at the American Association of Long-Term Care Insurance, which is offering eight educational conferences for advisors starting in April in California (www.aaltci.org), are also hoping that outreach will encourage advisors to make this product part of their repertoire. "Most producers really lack a clear understanding of how LTC protection can suitably fit into a client's financial plans," says the group's Slome. "We want advisors to know that you don't need to be a sales specialist to offer LTC solutions to clients. We'll be devoting much of the day to showing advisors how to find resources and address client needs."
It's still a game of artful persuasion and illustration. After all, as the old saying goes, LTC insurance is sold, not bought. According to Keller, advisors have to understand client objections and be able to counter each of them meaningfully. Client objections, Keller says, are as follows:
I'll never need LTC insurance.
If I never use it, the money is gone.
It's too expensive.
The need for long-term-care insurance is starting to hit home with older generations and baby boomers as they see family members, friends, neighbors and co-workers struggle with the expenses and difficult decisions concerning long-term care, Keller says. To illustrate this further, he shows what will happen to client portfolios if one or both members of a household were to need long-term care.
Keller uses asset-based policies, such as those offered by Genworth and John Hancock, to counter "the money will be gone if I don't use the insurance" objections. These policies require an up-front deposit, which then is used to buy long-term-care insurance and life insurance. "For $100,000, you'll get $150,000 in life insurance and $300,000 in long-term-care benefits," says Keller.
MetLife allows policyholders to credit back up to 80% of their premiums at the tenth anniversary of the policy, Keller says. "You're paying more for the package, and the insurer hopes it can use the time value of money to their advantage."
As for countering the expense objection, Keller says he works hard to present a multitude of policy options and to help clients weigh their choices. He also shows them how they might be able to pay premiums out of their investment earnings whenever possible.
"Between my wife and I, we had three parents who all needed long-term care," Keller adds. "If they hadn't had coverage, this would have been harder than it already was. I think boomers will start to see these events as a wake-up call, but advisors really have to present coverage in a logical way."
No one knows that more clearly than Arthur Stein, a Bethesda, Md.-based financial advisor who began specializing in long-term-care insurance more than 15 years ago. While some 85% of Stein's clients have bought long-term-care insurance, he says, "It's as hard to convince people to buy a policy today as it was 15 years ago when it was a much newer industry."
To ensure that clients have a clear idea of what they can buy, Stein presents spreadsheets on the better policies from at least five different insurers. "I show them the most important differences in policy provisions and help them make a decision. The best company for them can depend on their age, marital status and health," says Stein, an advisor and the long-term-care specialist at First Financial Group. "Honestly, it's been frustrating. I feel like the industry has not done a good job of educating consumers and financial planners to the benefits of long-term-care insurance and who needs it," adds Stein, who says that policy pricing and the fact that premiums have increased some 30% in the past five years makes sales more difficult.
Still, Stein says, he's amazed that more advisors aren't making presentations to clients regarding their long-term-care risks. He maintains that advisors' failure to counsel clients about their long-term-care risks is contrary to doing estate planning to maximize assets for heirs. "I ask my clients, even the most conservative and wealthy of them, 'Why are you concerned about temporary declines in the market and what it will do to your assets, but not interested in the permanent decline in your portfolio that will result from a long-term illness?'"
Dan Taylor, a former advisor and the author of The Parent Care Conversation (Penguin Books), says, "I think there is a new role for advisors to play, one that allows them to act as a platform of support for long-term-care solutions." Taylor, president of the long-term-care consulting firm, Parent Care Solution in Charlotte, N.C., is practicing what he preaches. His company just broke ground on the first in a series of 10,000-square-foot adult day-care facilities, and is building a 10,000-acre, multigenerational real estate development in the North Carolina mountains that will provide housing to aging parents and recreational housing for boomers around themes featuring equestrian, tennis and golf activities.
The real opportunity for the financial advisory community, Taylor says, is in solving the greatest problem that boomers are facing with their parents: that of caring for them, long distance, without all the money needed. "I think there are really only going to be two types of advisors in the future," Taylor says. "Those who offer their clients long-term-care counseling, and those who better increase their E&O [errors and omissions insurance] premiums."