In retrospect, it was inevitable. Sales of traditional long-term-care insurance have been dropping for years while hybrid coverage—i.e., LTC riders linked to life insurance or an annuity—have been growing in popularity. But Jesse Slome, director of the American Association for Long-Term Care Insurance, a national trade group based in Westlake Village, Calif., says that sales of the linked plans have now surpassed those of their stand-alone counterparts. “No question,” he says. “There’s definitely a trend shift.”

Last year alone, sales of traditional LTC policies fell 24% from the previous year, as measured by industry research firm LIMRA, to an estimated 131,000 policies. The equivalent figure some 15 years ago was 750,000 policies sold annually.

By contrast, in the six years ending 2014, sales of life insurance with LTC benefits jumped approximately 500%. “When customers are made aware of the linked-benefits options, 98% of the time that’s what they will choose,” says Carol Jochem, vice president and insurance program manager at BMO Harris Financial Advisors in Milwaukee. “I’ve seen it time and time again.”

What Lies Behind The Numbers
The reasons for this shift are many and not terribly surprising. While insurance companies have scrambled to innovate with more attractive LTC options, providers of traditional plans have struggled cataclysmically. Poor profits—due to inadequate and premature actuarial data that underestimated payout risks, combined with low interest rates—caused many to exit the market. Over the past five years alone, MetLife, Prudential and three other large providers reduced or completely ended sales of new policies, leaving only a dozen or so providers today still offering new stand-alone LTC policies. Just 15 years ago, there were more than 100.

What’s more, surviving firms have been winning state regulatory approval to raise premium rates, sometimes by as much as 45% or more. “That hurts, for clients and for advisors,” says Steve Cain, a principal and national sales leader at NFP Long-Term Care in Los Angeles. “That’s a hard message to deliver to somebody whose money you’re supposed to be managing.”

As their rates balloon, companies have also tightened their underwriting requirements to lower their risks. “We see fewer advisors offering this type of coverage because they don’t want to deal with the process that LTC planning requires,” laments Brian Gordon, president of MAGA, a long-term-care advisory firm in Riverwoods, Ill.

Advisors May Be Skittish
Research bears this out. In June 2015, Lincoln Financial Group, the leading provider of linked LTC benefits, released a study that shows most advisors rank long-term care as among the most difficult aspects of managing clients’ retirement-income planning. Fewer than half the advisors surveyed had discussed LTC costs with the majority of their clients, and not even 10% had implemented LTC solutions for them.

 

“The fundamental issue is clients want and need to understand all the options they have, so advisors need to be better educated to speak fluently about them,” says Andrew Bucklee, head of insurance solutions distribution for Lincoln Financial’s wholesale distribution arm in Radnor, Pa. “Nine out of 10 advisors expect demand for LTC protection to increase over the next five years. They need to have confidence about having these conversations with their clients.”

Improving LTC’s Image
The news is far from all bad. Last year a record $7.85 billion in benefits was paid out to 250,000 individuals, notes Slome. “Total LTC insurance benefit payments increased by 5% from the prior year,” he says.

In other words, as Cain puts it, “From the policyholders’ perspective, it works.”

While the industry may be faulted for not trumpeting its successes sufficiently, it has instituted a number of attractive innovations lately. For instance, some providers are allowing gradual rate increases, or the option to roll back benefits to save money. “There are significant changes to both traditional and linked benefit products that make them far more consumer-friendly, in terms of their benefits and features, and in how advisors and agents can approach consumers,” says Slome.

He further cites “creative inflation growth options, where the consumer can significantly reduce costs and lock in their health insurability while retaining the flexibility to add benefits at a later date if they want and can afford to,” he says. “That flexibility makes some of these newer products much easier to sell. It’s always easier to sell a policy that costs $1,500 a year than one that costs $3,000 a year, with the flexibility to add features later.”

True innovation in LTC offerings has been a long time coming. “In the past, we saw new generations of the product, but that just meant more conservative actuarial assumptions and higher prices,” says Cain. Now, he says, new products with inflation-protection options “where you are buying as you go, to gradually increase the value of the policy over the years so it’s not just a one-and-done purchase,” are truly creative, he says. “We are also seeing more hedging, where there is co-insuring, and catastrophic policies where there might be a long deductible period for, in effect, greater risk sharing.”
Cain applauds these advancements. “We are now at a point where the industry is in better alignment,” he says.

Options For Existing Policies
For clients with existing policies that no longer seem affordable, advisors have several tweaks to suggest. “People always have the option to reduce the years of coverage, lower their current daily benefits, reduce inflation protection and increase the elimination periods,” says MAGA’s Gordon. “We have been able to reduce some of our clients’ benefits, and it has allowed them to retain very meaningful coverage.”

The variety of hybrid offerings has also grown. “There are far more insurers offering these linked products,” says Slome.

 

In the past, stand-alone policies were cheaper or offered more benefits. But today’s hybrids “are more attractive [than they used to be],” notes Gordon.
Jochem at BMO Harris posits that consumers are more aware of the need for long-term-care coverage than ever before, but surprisingly unaware of the linked options. “When you show them the linked-benefits choices—where they don’t have to pay premiums throughout retirement, have control over that asset, can change their mind, have a return-of-premium option and can benefit from simplified underwriting—most will go for that,” she says. “Plus, they like the idea that if they don’t use the LTC benefit, they can still get their money back for other purposes or keep the asset in their estate.”

Varieties For Every Profile
Of course, individual needs and priorities vary. “The positive to buying the life insurance with the LTC rider is that the premiums will not go up. … The negative is that you have to buy enough life insurance so that the 1%, 2% or 4% a month rider will provide enough LTC insurance to fill the need,” says Gary Smith of New England Retirement Advisors in Auburn, Maine. “Inflation is not built in.”

Still, experts agree that what’s currently available does provide sufficient options and stability. “Consumers have an adequate array of choices,” Smith says. “The companies that have stayed in the market are committed to long-term viability. The companies that are no longer in the business probably should not have been in the business to begin with.”

Similar reassurances come from Richmond, Va.-based Genworth Financial, the leading seller of LTC policies. Spokesperson Al Orendorff says, “The current group of companies now selling and servicing long-term-care insurance has the scale and commitment to serve the large market of older Americans who still wish to purchase this product. … There are more choices than ever.”

That’s especially good news considering the growing number of senior citizens who may need LTC coverage. Orendorff says the independent SCAN Foundation, a Long Beach, Calif.-based nonprofit devoted to improving life for senior citizens, recently concluded that the number of Americans who need long-term care will rise from 12 million today to 27 million in 2050. “The increase in sales of hybrid and linked policies is a reflection of and response to that need,” says Orendorff.

Expanding And Contracting Simultaneously
That said, it may sound contradictory—an expanding market from a consolidating industry? Orendorff contends that the industry is still smaller than it could or should be.

“The industry is evolving and creating options for consumers,” concurs Kamilah Williams-Kemp, a vice president at Milwaukee-based Northwestern Mutual, another key provider of LTC policies. “There’s really no one-size-fits-all solution.”

That doesn’t mean its growing pains are entirely behind it, though. Last November a Boston College study found, in part, that average long-term-care costs are actually less catastrophic than previously thought, and it called into question the very need for LTC coverage of any type. Bad press followed.

To longtime observers, though, it was a short-lived distraction. “That study really is irrelevant, and you can quote me on that,” says Slome. “It focused primarily on the need for skilled nursing home care, when the vast majority of LTC insurance pays for care other than in skilled nursing homes—51% of new claims start with home care, which is what people want.”

Indeed, given the aging population, the necessity of LTC solutions remains indisputable. And growing. “The need for long-term care isn’t going away,” says Williams-Kemp.