Long-term care insurance is coming of age.
The numbers of carriers offering the product has been winnowed to a few strong hands, while the number of LTCI features have narrowed to what clients really need and want.
And this evolution couldn't be better timed for the 77 million Baby Boomers, as the potential demand for care could become a tidal wave.
Once numbering some 100 companies, the roster of strong LTCI carriers has been trimmed by roughly half. In a recent survey published on the advisertoday.com Web site, 29 companies listed the features of their LTCI plans.
"We started with something around 112 carriers," said Chad Smith, CFP, ChFC, CLU, insurance specialist at broker/dealer HD Vest Inc., in Irving, Texas. "By the time this shakes out, we'll probably have eight to 10 major carriers and 20 or so smaller ones."
The pricing of some policies has increased in parallel with the diminished number of companies supplying product. According to Smith, advisors saw 20 percent premium increases over the past years in a few age categories. But declining competition is not to blame: "Carriers just can't make money on the investment side with the interest rates so low," explained Smith.
As advisors present long-term care options to increasing numbers of clients, the list of priority features comes into sharper focus. "We first look for carriers with at least an A rating," said Smith. "Next, we look for the number of times the carrier raised rates. There we choose companies that haven't raised rates at all."
Top on many lists is the demand for inflation protection. If policies don't have that built in, Sidney Blum, CFP, CPA/PFS, ChFC, director of financial advisory at Leonetti & Associates, in Buffalo Grove, Ill., doesn't recommend them to clients.
Blum also looks for full coverage on home health care. But price is not a point of decision for Blum. "Premiums are not that bad when one considers the significant costs for a nursing home," he said. "In the Chicago suburbs the average daily rate for a semiprivate room is around $180, according to recent figures."
Other top features include the joint waiver, full indemnity, and 10- or 20-year paid-up plans. The joint waiver refers to the deferment of premiums on a joint policy if either spouse is on claim. Full indemnity plans pay out the coverage promised, but not reimbursed, directly to the insured. The paid-up plans are of particular interest to small business owners, according to Joseph P. Riley III, CLTC, brokerage director and LTC specialist at The South Carolina Agency, in Charleston, S.C. "The 10-year paid-up plan is popular as a golden handcuff for key employees," said Riley.
Employer-sponsored plans have gained in popularity for other reasons.
While the premium is fully deductible to the employer under most conditions, the benefit is not taxable to the employee. Additionally, employers with C corporations are not required to offer the benefit equally to all workers.
Riley's firm offers the product through their and other agencies throughout the southeast. Their LTCI business jumped 139 percent in calendar year 2003, which Riley credits to both the increased tax benefits, and agent and client education on the benefits and needs of the product.
Affiliated agents gained formal training with the product through the Corporation for Long Term Care certification program, described at www.ltc-cltc.com.
"With the rapid rise in premiums for major medical, employers have less money to pay fully for LTCI," said Riley. "But still employers want to offer it even if employees pay a portion."
Employees benefit from the group rates even if the worker bears the full cost. Blum reported a recent review of an employer-offered policy for a client. For the relatively young 47-year-old, the coverage was about $400 per year, with no medical exam required. The policy carried several advantages like spousal coverage, and coverage extended to parents under certain conditions.
But there were disadvantages compared to individual contracts. "The plan covered only 75 percent of home health care," said Blum. "And there was no inflation protection. Policy holders could buy additional coverage every three years, but at three years older and carrying the risk of uninsurability."
Whether the policy is an individual or employer-sponsored plan, the choice of carrier is as important as the choice of features to Vest's Smith. Carriers that want to work with Vest advisors must fit certain criteria. In addition to a good track record of service and underwriting, HD Vest requires open access to underwriters themselves. The carrier must have a Web site with superior interactivity, offering forms, marketing materials and online status reports.
The firm runs training sessions that are continuing education-qualified. The results show in the number of new policies each year. "We expect about 600 or 700 new cases from our 3,000-some advisors," said Smith.
While most credit education about the product, the growth in LTCI is often event-driven. Both clients and advisors become acutely interested in this type of coverage when someone close to them ends up in a care facility. Smith reports that one of their advisors who is most interested in the LTCI product sold her mother a policy. Six years later her mother was on claim. The ease of the claims process and the coverage of nursing home costs reinforced the importance of the care for all older clients.
Advisors also look to increased tax incentives to fuel interest in LTCI. Several proposals in Congress now would add "above the line" deductibility for the insurance solution, as well as provide protection of other assets if Medicaid is needed. The Senate's Long Term Care Insurance Partnership Program Act of 2004, sponsored by Larry Craig, R-Idaho, and Evan Bayh, D-Ind., includes both items.
"We're all looking for the Internal Revenue Service to catch up to the growing demand by offering more incentives," said Blum.
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