When Shirley Luu secures long-term-care coverage for her clients, she prefers using fixed-indexed annuities with an LTC rider rather than through a traditional insurance policy.
“There are clients who feel paying for a stand-alone long-term-care insurance policy could be a waste of money if they never use it,” Luu told Financial Advisor. “With a fixed-indexed annuity, the long-term-care rider is an option along with a lifetime stream-of-income rider.”
Over the past two years, Luu said her financial advisory practice has enrolled some 200 clients in a fixed-indexed annuity with the option of a long-term-care rider. Companies that offer these products include American Equity and North American.
“Linked-benefit products are helpful for clients that have pre-existing conditions that disqualify them for traditional long-term-care insurance policies,” Luu said.
According to the American Association for Long Term Care Insurance (AALTCI), 2014 was the first year that more consumers purchased a linked-benefit product as opposed to a traditional, long-term-care insurance policy.
But now that long-term interest rates are on the rise, advisors like Luu may be shifting their focus back to traditional policies.
“Advisors have been taking a singular approach, focusing on linked-benefit products because they are easy and don’t come with the negative perceptions of traditional long-term-care policies, but they should be aware that interest rates and long-term-care policies are connected,” said Jesse Slome, director of the AALTCI.
The Federal Reserve raised its key interest rate for the first time in nearly a decade in December, from a range of zero to 0.25 percent to a range of 0.25 percent to 0.5 percent.
Because insurers primarily invest specifically in bonds or fixed-income securities and not equities, higher interest rates are good news for insurers.
“It will mean additional revenue for long-term-care insurers that will relieve the financial stress they have been facing, free them up to grow the long-term-care market and give them breathing room to provide some rate stability to their customers,” Slome said.