(Bloomberg News) Pearl Neier, 85, said she decided against long-term-care insurance after hearing about the policies from AARP, the Washington-based group that lobbies for older Americans.
"It was much too high for me," said Neier, sitting in the sunny dining room of the VillageCare retirement home on West 46th Street, which overlooks the Hell's Kitchen neighborhood of New York. Neier said her room and board is covered by Medicaid and Social Security.
The insurance industry, which has struggled to persuade skeptics like Neier that they need the policies, has turned to selling combination products that blend long-term-care with traditional life insurance. The policies generally are built using universal life, which has an investment component, and may pay out the death benefit early to help pay for care.
Sales of the hybrid policies, which can cost $100,000 for a maximum monthly benefit of $5,000 and come with sales commissions as high as 8 percent, more than doubled in 2010 at Genworth Financial Inc. Sales of traditional individual long-term-care insurance industrywide dropped 23 percent over the five years ended Dec. 31, by contrast.
"The problem with long-term-care insurance is that the wealthy don't need it, because they can afford their own care, and the middle class can't afford it," said Peter Katt, a fee-only life-insurance advisor based in Mattawan, Michigan. "It's a small sliver of the population who should even consider it."
Using Your Money
The contracts generally are designed so that payments for care come dollar-for-dollar out of the death benefit, meaning that a buyer who taps a policy for long-term-care will pass a reduced or no death benefit on to heirs.
"If you give a company $100,000 today then you'll basically be spending your own money for the first two years of claims," said John Ryan, an insurance broker and founder of Greenwood Village, Colorado-based Ryan Insurance Strategy Consultants. The median stay in a nursing home among patients who pass away there is five months, according to research by Alex Smith, assistant professor of medicine with the University of California, San Francisco, and Anne Kelly, a social worker who was a student at the University of California, Berkeley, at the time of conducting the research.
The combination insurance may be an easier sell to consumers skeptical of paying for insurance they may never use, said Brian Peterson, president of Charlotte, North Carolina-based NextGen Advisor, which works with financial advisors in evaluating policies. Some insurers, such as Radnor, Pennsylvania-based Lincoln National Corp., are guaranteeing that buyers can get their premiums back at any time before tapping the benefit.
Money Back
"Most people who buy hybrid insurance are not buying it because they want life insurance, they're buying it because they need long-term-care insurance and the sales pitch that you can get your money back no matter what is pretty compelling," said Ryan, the Colorado broker.