The Biggest Need Your Clients Haven’t Addressed: Long-Term Care
A key to success in sales is figuring out what your clients want and providing it to them. The reality is that your clients want long-term care insurance (LTCI). They just don’t know it yet.
According to the U.S. Department of Health and Human Services, 70 percent of 65-year olds will require long-term care services in their lifetime.1 Alongside this mounting statistic, it’s important to note that long-term care services are different from medical services. Medical services are designed to cure someone of an illness whereas long-term care services are designed to help a person compensate for their loss of ability to do certain tasks on their own as they age.
When the need for long-term care services arise, your clients will find that neither Medicare nor Medicare supplement insurance typically pay anything for those services except under very specific circumstances, and even then only for the first 100 days. When your clients face bills for this care, they may wish they had purchased LTCI.
To help your clients see the need to address this matter today, ask them, “Have you protected yourself against a substantial risk that could derail your retirement plans?” Or you can ask something like, “Do you know what can rapidly run through your retirement savings as you get older?”My experience is that once clients are made aware of their exposure, they are often very eager to hear about how to address it.
The fact is that when a married person needs long-term care services, it places a potentially tremendous caregiving and expense burden on the healthy spouse. When a single or widowed person needs help taking care of themselves, the burden can fall to their children and other family members. In either case, retirement assets can become depleted much more quickly than planned.
My experience is that once clients are made aware of their exposure, they are often very eager to hear about how to address it. They had perhaps assumed that Medicare fully pays for these expenses. But when prompted, they can often think of someone who experienced those expenses and had to spend their own money, which helps them to realize that you are correct.
The Need is Increasing Yet, LTCI Sales are Falling
The Baby Boomers, the biggest generation in U.S. history, are in their prime years for purchasing LTCI, yet this market has seen a decline of 70 percent in the last 12 years.2 This means about 750,000 people purchased an LTCI policy in 2002 per LIMRA, yet last year only about 230,000 people purchased a policy when adding together both traditional LTCI and combination products.
To compound the issue, there are a variety of reasons that fewer agents are offering LTCI, such as the coverage is more expensive than it used to be, there has been a history of rate increases on force policies, and carriers have gotten stricter in their underwriting practices.
This creates opportunity for you. It means that if you raise the LTCI topic with your clients, it is less likely that another agent has already satisfied the need.
Annuity Income Riders with Illness Benefits
For agents who are accustomed to selling annuities, there is a partial solution to this challenge that should be familiar to you. Many annuities offer income riders, and some income riders are offered to provide an increased income payment in the event of certain nursing home confinements, or even possibly a loss of ability to perform various activities of daily living.
Some advantages of these annuity income riders are:
- They provide increased income to your clients in the event of certain situations that could coincide with higher expenses due to the costs of long-term care services,
- Your clients can qualify for these riders without going through an underwriting process,
- There is no out-of-pocket bill for your clients to pay for the coverage, and
- The cost of the enhanced payment is not explicitly identified because it is embedded in the annual cost of the income rider, which is deducted from the contract value.
However, these riders typically do not pay benefits in nearly as many circumstances as true LTCI and the annuity benefit provided typically is not related to their actual cost of care.
Thus, there is still a place in your clients’ financial plans for a standalone LTCI policy. While a standalone LTCI policy does require passing an underwriting process and paying out-of-pocket premiums, it will typically provide benefits regardless of care venue (such as at your client’s home, at an assisted living facility, or at a nursing home), and it will typically provide benefits on a reimbursement basis, which means that the LTCI policy reimburses the actual care expenses up to the policy limits.
Making LTCI Affordable
LTCI premium rates have increased over the last decade as carriers have had to price in lower interest, lapse, and mortality rates, as well as higher claims costs than the industry had previously anticipated. However, a standalone LTCI policy remains the vehicle to leverage the least of your clients’ dollars into the largest available pool of LTCI benefits.
So, how do you make LTCI affordable for your clients? Here are some ideas:
- Buy a small pool of benefits: Even a relatively small policy can provide coverage for enough home care providers to help your clients remain in their home longer without overburdening their spouse or children.
- Choose a smaller inflation benefit: It is common for LTCI purchasers to purchase an inflation benefit, but choosing a three percent inflation benefit rather than a five percent inflation benefit can significantly cut policy costs.
- Decline optional riders: LTCI policies typically offer a wide variety of riders, and while many customers will value features such as shorter elimination periods or shared coverage, cost-conscious purchasers can pay a much lower premium by opting not to have them.
Customers often haven’t thought much about their possible need for long-term care services, but if you raise the topic, you will help them to address one of the top risks they face as they age. By better serving your clients by offering LTCI, you could substantially increase your income as well.
2 LIMRA Individual Long Term Care Insurance 2014 Sales and In Force, 3/9/2015, and prior years’ versions of this report; LIMRA Individual Life Combination Products (Life with Long-Term Care & Life with Chronic Illness Riders) 2014 Annual Review, 6/4/2015
All guarantees are based on the claims-paying ability of the issuing insurance company.
It is important to understand that many states require a health insurance license and continuing education to sell long-term care insurance.
Chris Conklin is Genworth’s Senior Vice President of Product Development, where he is leading the design and pricing of all new product development in the company’s life insurance, annuity, and long-term care product lines. Chris is a Fellow of the Society of Actuaries and holds a Master of Business Administration degree from Loyola University Maryland. He is also a licensed insurance agent and has sold insurance products.