The LTC insurance conundrum: Slumping sales, but no shortage of demand

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It’s the best of times and the worst of times for Christine McCullugh, president of LTC Solutions, a group long-term care insurance specialist agency in Redmond, Wash. On the one hand, she says business is booming. On the other, “It’s difficult to find product,” she laments.

Her predicament stems from the dwindling number of carriers that still offer stand-alone long-term care insurance on a voluntary group platform. More carriers still sell individual LTCI, but overall sales have been on a downward slope for several years, according to LIMRA data.

Sales, meanwhile, of combo products—permanent life policies that give policyholders the option to drawn down their death benefit for long-term care expenses—have been going up. In 2016, LTCI contracts generated $228 million in premiums, versus $2.6 billion for combo products. Combos have now outsold individual LTCI policies for the past decade, according to LIMRA.

But sales comparisons aside, “pure” LTCI insurance is far from dead. McCullugh believes that the real constraint on the LTCI product pipeline are carrier concerns that their rating agencies will frown on them, if they have too many LTC liabilities on their books. She is confident that she could find more employers who would agree to put LTCI on their voluntary platforms, if she had more product to offer.

What frequently sparks an employer’s interest, she says, is when a senior executive has a family member, perhaps a parent, in need of long-term care, and is shocked by the cost. McCullugh also has clients that have conducted employee surveys and found an interest in LTCI.

The benefits of buying LTCI on a group platform include:
· More relaxed underwriting procedures (e.g. no lab tests),
· The ability to make coverage available to spouses and family members,
· Occasional premium discounts and
· Premium payment via payroll deduction.

Brian Harrington, head of group LTC sales for Genworth, acknowledges that LTCI sometimes takes more explaining than other group products. But he says that advisers who do a good job of educating employers about LTCI’s purpose and how to present it to their employees, will find the product rewarding to sell.

Dedicated enrollment period
Harrington encourages employers to present LTCI to employees outside of their regular open enrollment period, so that it doesn’t get lost in the shuffle. Most employers, he says, go along with the idea.

And when they communicate with employees about the offering, Harrington urges employers to include their own branding elements, along with the carrier’s, to increase the chances of capturing their employees’ attention.

Advisers who pitch LTCI to employers typically run into one of two situations. Either the employer is completely unfamiliar with the offering and needs a full education or has included it among its voluntary offerings in the past, but dropped it when the carrier whose product the employer carried abandoned the market—although employees who purchased the coverage may still be paying the premiums via payroll deductions.

In the latter scenario, employers generally have no problem adding the product back into the mix and starting over with a new carrier. “Maybe they started with Pru then went to Hancock,” says McCullugh, referring to two former LTCI players that have since exited the market. “We have some employers that are dealing with four carriers today,” she adds.

Some facts about LTCI that she uses as selling points include:
· Long-term care services aren’t just for old people; 40% of the people in long-term care facilities are under age 65. A serious ski accident, for example, can land you in an LTC facility, if extended rehab is required.
· As with life insurance, the sooner an employee buys coverage, the lower the premiums that she will pay and the smaller the risk of being turned down for coverage.
· And very importantly, an extended stay at a long-term care facility can bankrupt a family—if that risk isn’t managed with LTC coverage.

A newly released study by PwC on the cost of long-term care services supports that conclusion. It’s the first study based on actual LTC claims, instead of extrapolations, according to Larry Rubin, a PwC principal and head of the firm’s LTC consulting practice.

The PwC report calculates the probability that an individual will incur various levels of LTC cost over the course of his lifetime. It concludes, for example, that there’s a 52% probability that the cost will exceed $100,000, and a 12% chance it will total between $400,000 and $450,000.

To determine their coverage requirements, Rubin suggests that employees consider LTC insurance in the same way they think about any other relatively improbable but potentially devastating financial risk.

For example, it might be pointless to purchase $50,000 of life insurance, if an employee’s family can withstand a $50,000 financial blow. But if incurring $450,000 in long-term care expenses would bankrupt the family, then that is a risk that necessitates financial protection.

And while Rubin acknowledges that most long-term care services today are paid for by Medicaid, he adds that “You can’t assume that today’s Medicaid rules will apply in 30 years,” adding, “And you don’t want to find yourself at the mercy of the government.”

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