New Prices, New Products
It would certainly take a crackerjack team to keep up with recent pricing trends and new product designs. For example, some traditional LTC insurance plans offer unlimited lifetime benefits while others are capped at a set dollar amount or number of years. There are also shared plans, which allow a husband and wife to save money by jointly purchasing a package with, say, a ten-year benefit; if one partner dies before receiving the whole benefit, the surviving spouse retains the balance.
Some carriers offer premium amortization so policyholders can pay off coverage completely within a set time-for instance, over ten years or by age 65. This requires heftier payments but saves money in the long run.
In addition, there are hybrid plans (sometimes called "combination" or "linked" products) that offer LTC benefits as a rider to a life insurance policy or an annuity. One example is Lincoln Financial Group's MoneyGuard Reserve account. A universal life policy with an LTC rider, it provides tax-qualified benefits if and when the policyholder suffers an LTC event. If the policyholder never uses the LTC coverage, a tax-free death benefit is paid to the heirs-or the principal can be returned in full if the owner changes his or her mind. Premium prices are locked in at the beginning.
LTC-linked annuities work in a similar way. If you never make an LTC claim, the initial investment isn't lost but passes to heirs, typically at double the original dollar amount. Usually, no health inspection is required to qualify. As appealing as this option may sound, it does oblige you to pony up at least $50,000 from the get-go, and benefits are usually capped at three times that original investment, which may not be enough to cover a protracted LTC crisis.
Custom Tailoring
Despite the array of options, there's still a compelling need for more and better LTC solutions. "It's clear the need for LTC insurance is growing, not shrinking, and therefore it will be critical for advisors to seek out a range of solutions," explains Mike Hamilton, Lincoln Financial Group's assistant vice president of Life Product Management.
Advisors might start by asking clients how much of their liquid net worth they are willing to reserve for potential future long-term care. "When clients better understand the true costs of care, the likelihood they will need it and the very difficult challenges the family will face in paying for it, LTC insurance is a far more cost-effective choice [than they may have realized]," asserts Glen Coral, director of advanced planning at CBIZ Special Risk Insurance Services, in Philadelphia. "Tax laws surrounding these products are continuing to evolve. How benefits are to be delivered in the future under the Pension Protection Act and health-care reform should point advisors to align themselves with organizations that specialize in this business."
A Wake-Up Call
Certainly the recent LTC commotion should be taken as a wake-up call, if nothing else. "It's not new exactly," observes Murray A. Gordon, CEO of Maga Ltd., a financial advisory firm in Riverwoods, Ill. "In the 35 years I've been in this business, I've seen many companies come and go, big ones and small ones."
Among the providers that have bolted: Aetna, American Express, CNA, TIAA-CREF, Transamerica and, in the past two years alone, Allianz, Conseco and Securian Financial Group's Minnesota Life Insurance Co.
Sometimes it's just bad management, says Gordon. "You often have people running divisions who are clueless in certain lines of insurance, and they run them into the ground," he says. "They may know life insurance, but that doesn't mean they understand long-term care."
Gordon notes that MetLife's departure came only after it raised rates and laid off staff. In other words, there were ample red flags. But, he says, it's important to remember that the company pledges to honor its existing obligations. "With a quality company like MetLife, you don't face the problem of defaulting," he says. "There's a big difference between a quality company and a substandard one."