The long-term care insurance market is shifting from standalone products to hybrid ones, roiling traditional strategies for covering a financial burden that clients often bear but advisors insufficiently discuss.

More than half of 65-year-old Americans will require LTC services, and they face average costs of $138,000, according to a report by the Department of Health and Human Services. Although Medicare does not cover most LTC costs, HHS says fewer than 8% of Americans have purchased private plans.

LTC riders chart, AXA U.S.

Clients often underestimate both the need and the cost of the services, according to studies cited by HHS. One survey found that fewer than 20% of clients had discussed LTC with their advisor, and NAPFA Chairman Scott Beaudin says advisors “absolutely” do not talk about LTC enough with their clients.

Fortunately, he adds, “There is definitely recognition by planners, and there are new products coming to market that are helping us bring structure and process to helping clients navigate. There’s rarely a family that we encounter now that either is not in this place personally or will be in this place at some point.”

LTC riders attached to life insurance plans present a way forward for clients who could face thousands of dollars in daily care expenses. Key players like John Hancock, MetLife and Prudential have stopped selling new individual LTC policies amid industry struggles with low interest rates.

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A DIFFERENT MODEL
Distributors like AXA U.S. have seen significant growth in the number of clients adding LTC riders to their life insurance policies, according to Trey Reynolds, the company’s head of life distribution. Rising premiums for traditional LTC policies and the advantages of hybrids are driving the trend, he says.

“It really delivers the ultimate flexibility and therefore the ultimate value to the policyholder,” Reynolds says.

“It’s a very different model, which is why most insurance companies have moved to it,” he says. “That’s going to take education for us to go out and tell people why hybrid products are different and why they can think about them differently than traditional long-term care products.”

Reynolds acknowledges the expense and complexity of LTC insurance often drives clients away from the topic altogether. He declines to provide cost estimates for AXA’s products, saying the products vary too widely to provide the numbers.

But hybrid plans may carry upfront premiums as high as $100,000, according to fee-only broker Peter Florek. The policies often carry additional annual premiums of $2,000 to $3,000, says Florek, vice president of Riverwoods, Illinois-based MAGA Long-Term Care Planning.

With nursing home fees as high as $2,800 per week in New York or $1,750 a week elsewhere, however, the products are worth their price, he says.

“In all cases with these hybrids, these are going to be guaranteed for the life of the product. As a result, the hybrids are more expensive,” Florek says. “They have really grown dramatically in recent years as people look for guarantees where they can get them.”