Long-Term Care Options Proliferate: Are They Viable?

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.