While many financial planners have been as deft as their clients at ignoring the subject of long-term care (LTC) insurance, that's about to end. It's not the sexiest of topics, but LTC insurance is poised to go front and center, thanks to the fact that 20 million federal government employees and their families will be offered group-sponsored LTC policies starting this fall. The ensuing information blitz is expected to bring to the forefront a host of newsworthy LTC issues, including reasonable premiums, significant policy improvements, tax benefits and the economic reality of choosing to pay out of pocket to cover escalating care costs or gamble on Medicare.
Whether clients are employees of Uncle Sam or not, more people than ever before will want to know how LTC insurance works and how benefits can assist their planning, says Arthur Stein, a CFP and financial planner with Cassaday & Co., in McLean, Va., who specializes in LTC insurance.
What planners will discover may surprise them. Consumers who buy LTC policies are getting significantly wealthier and younger, according to a 2000 buyer's study from the Health Insurance Association of America (HIAA). In fact, more than one-third of LTC policies are purchased by people younger than age 65. The average income and asset level of buyers have increased significantly over the past decade. Not only are those buying policies wealthier than the average population, but they also are more likely to be married and college-educated, the HIAA found.
As interesting, clients don't view LTC as just another insurance policy. Increasingly, they see it as a crucial piece of their estate plans. In fact, one in three buyers say he or she buys coverage to protect and preserve assets and estates, according to the HIAA's 2000 Buyer's Survey.
Planners who have seen LTC insurance as ancillary to their business now may need to rethink that view. Buyers prefer to have this product coordinated and run through a trusted advisor, the HIAA finds. "This is still a product that must be sold," says Stein.
But clients are becoming more receptive. The economic reality of getting old is setting in for many Americans, who are either witnessing parents and family members pay for long-term care or are paying themselves to care for aging relatives. "The reality is, paying $50,000 or $75,000 in long-term care premiums over a lifetime can look pretty attractive when the alternative is paying $1 million or more for care," says Stein, a board member of the American Association for Long-Term Care Insurance (AALTCI), a Westlake Village, Calif.-based group that represents agents and brokers who specialize in LTC insurance. "More people, especially the affluent, are doing the math. It takes one year or less of claims to recoup a lifetime of premiums."
Real-life experience and the prospect of paying an estimated $90,000 annually for long-term care by 2010 have begun debunking the myth that long-term care insurance is unaffordable, says Jessie Slome, executive director or the AALTCI and president of www.ltcsales.com, which specializes in LTC marketing tools. While actual annual premiums can vary widely, depending on a policyholder's age and health, the average annual premium was $1,677 in 2000, up 11% since 1995, according to the HIAA.
Already the market is experiencing strong growth. Sales of long-term care policies increased 12% in 2000 and are expected to have increased more than 15% in 2001, according to the American Council of Life Insurance. Still, there are only just shy of 2.5 million individual policies on the books. That leaves a huge, untapped market as the population of Americans age 65 and over doubles to 70 million in the next 30 years.
Also changing? The state of care facilities. More and more traditional nursing homes are being replaced by luxurious digs being built and managed by the likes of the Marriott Corp. Where not long ago it was difficult to convince clients to buy a policy that would essentially pay for them to live at a place they didn't want to be, today's policies and facilities afford choice and rich lifestyles.
"As an industry, LTC insurance has evolved to address a much broader spectrum of buyers than it did before," says Peter Gelbwaks, president of Gelbwaks Insurance Services in Plantation, Fla. "Before, the oldest, sickest people came to the table, and many substandard carriers offered coverage. That's simply no longer the case."