Is Now the Time for Long-Term-Care Insurance?

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If the long-term care market is “broken,” why are some experts calling this year the year to buy the product?

“The current private long-term care insurance market is effectively broken,” Gretchen E. Alkema, vice president of policy and communications at the SCAN Foundation of Long Beach, Calif. “It has never held more than 10% of the potential market and many insurers have stopped offering these policies altogether. Reasons for lack of uptake are many: lack of public understanding and interest, high monthly premiums, and underwriting standards that make it difficult for individuals to qualify for coverage.”

Phyllis Shelton, president ofNashville-based LTC Consultants, concurs that the LTCI market is changing substantially. Nevertheless, Shelton, said “2013 is the year to buy long-term care insurance.”

Why buy (and why should financial advisors sell) long-term care insurance now?

“Insurance carriers are having to withdraw some of the more desirable benefits to keep rates as stable as possible,” Shelton said. “Now is the time to buy before gender rating kicks in and before the best inflation option (5%, compounded for life) becomes unaffordable or goes away. It takes time for new products to get approved--some states are really slow--so I believe we have until the end of this year before most of the changes are pushed through.”

According to Shelton, LTC insurance is still a viable and necessary planning tool; there are new and effective solutions available. Those solutions include not only stand-alone LTC insurance but also combo products. That is, a client who buys a life insurance policy might also get LTC benefits, if needed; similarly, a client who buys an annuity might also receive money for long-term care, under the contract.

In any case, clients will have life insurance or annuity benefits. Money won’t be “wasted” on a stand-alone LTC policy if the client never collects benefits for long-term care. Clients essentially are leveraging the money they put into life insurance or a deferred annuity to provide funds for possible long-term care as well.

“My son Chris and I have sold combo products,” said Lisle, Illinois-based Brian Ashe of Brian Ashe & Associates, Ltd., an insurance and investment firm. “We have more interest now that there are fewer stand-alone policies. People like the idea of being able to ‘get something back’ if they don’t need the long-term care benefit.”

Shelton said combo products are also called “asset-based LTC.” As she cautioned, “The big thing for producers to keep in mind is that they must explain what the product will pay out on a monthly basis at claim time. Even the wealthiest clients can get upset if they think they are buying something that pays half the cost of care and it really pays 20% of the cost when they have to use the policy.”

Clients with existing life insurance policies or annuities can exchange them, tax-free under Section 1035 of the tax code, for combo life insurance-LTC or annuity-LTC products as well as for stand-alone LTC insurance, Shelton noted.

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