Q What is your outlook for the stand-alone LTCI market? In what market segments are you seeing sales activity and/or optimism?
The stand-alone LTCI market will continue to be a major part of the LTCI solution, with over 50 percent of the present value of the long term care premiums on new policies being generated by stand-alone policies, and almost all of the rest being generated by the hybrids where most of the premium is actually life insurance premium. With the stand-alone LTCI new business premiums now quite stable and the future rate increase risk on those new policies minimal, I expect the new business volume for stand-alone LTCI to start increasing, especially among those carriers involved in offering tax advantaged, benefit advantaged, or worksite solutions.
In addition, everyone at the state and federal regulatory level realizes that a vibrant stand-alone market is necessary to help deal with the long term care crisis that will be created by the baby boomers if better penetration of LTCI does not occur. Both the National Association of Insurance Commissioners and the Federal Insurance Office are working with the industry, the ACLI, and non-profit think tanks to develop potential changes (including possible tax incentives) to spur the market.
All of this bodes well for not only the stand-alone market, but for the hybrid market as well, and most important for society at large.
My personal outlook on the stand-alone LTCI market is hopeful. Hopeful that the advisors will continue or start the long term care conversation. You can’t have a fire unless you create a spark! I’m finding that if my agents/advisors make the initial contact with their clients, instead of waiting to be asked about it, there are more chances for success. Now with that being said, I never miss an opportunity to turn every phone call into something related to long term care and always ask about any business opportunities due to the tax deductibility of some or all of the premiums.
We are on the verge of a tsunami that will quickly overtake the United States in terms of caring for the elderly. China faces an even more dire set of circumstanced due to the failed policies associated with one child per family and the wanton killing of female babies.
Even with the need for long term care increasing annually, market penetration has never exceeded 10 percent of the market over the last twenty years. That means that there are still over 72 million baby boomers and 84 million Gen X-er’s who need to talk to us!
Sales continue in the Baby Boomer market, but have definitely reached down to the GenX-ers and the following generations. The younger generations are clearly looking at the lessons learned by their parents in terms of being caregivers and are making long term care planning part of their long term financial plans and portfolios.
Financial advisors, estate planning attorneys, and other insurance producers are grasping the significance of not addressing long term care with their clients and, as a result, are embracing the products as well as working with experts like us for this one specific aspect of their clients long term plans.
For all of these reasons, I remain optimistic that the industry overall (to include hybrids, combo products, and life insurance with long term care riders) will continue to rise to meet the ever growing needs of our country as it ages in place.
a) It will probably rebound somewhat.
b) We can improve our consumer messaging significantly, both in the individual market and the work-site market (messaging to employers, as well as employees).
c) To help the middle market, we can sell more smaller policies, leveraging the State Partnerships.
d) People will arrange a variety of financial resources to address their potential long term care needs; stand-alone policies will be only one piece.
e) The industry raised prices, limiting the market to the affluent (especially with the benefit designs we were selling), yet took away the endless benefit period which is what affluent people want. We now have an endless benefit period available again. It leads to more sales, even of shorter benefit periods. Yes, I do mean to say that the availability of an endless benefit period increases the sales of shorter BPs as well as generating endless BP sales.
Q In your view what can the industry, and perhaps legislators, do to make stand-alone LTCI affordable for a larger percentage of the population?
As I mentioned in the prior question, the industry, the trade organizations, the state regulators, and the federal regulators are all focused on potential legislative solutions that will spur more LTCI adoption across a cross section of potential insureds.
Chief among these potential solutions are:
- Tax advantaged solutions to pay premiums, including penalty free/tax free withdrawals from retirement accounts (401Ks, 403Bs, IRAs), allowing FSAs to elect, and above the line deductions. While this option seems remote, it can be actuarially demonstrated that the savings available from privately financed LTCI on a broad scale will more than offset the cost of the foregone taxes initially.
- Employer based solutions such as an LTCI savings plan for paying LTCI premiums or direct LTCI expenses on an opt out basis (where the employee is automatically enrolled and must choose to opt out) similar to how 401Ks are handled. A Department of Labor determination in December, 2018, allows employers to payroll deduct disability insurance for all employees automatically. Employees then need to opt out to avoid paying for the disability coverage. A similar provision for LTCI would vastly expand the LTCI market. A smaller and easier change in the ERISA law, specifically exempting LTCI, would expand the offerings of voluntary purchase LTCI in the workplace.
- Changes in the IRS code such as allowing cash values to spur new and consumer exciting products such as Universal LTCI policies. Eliminating the minimum two ADL requirement from the TQ policy definition would allow for deferred annuities to be included as a basic LTCI benefit, creating a product that would start paying monthly benefits once a person became old and frail, even if they were not yet ADL dependent. Expanding the current 1035 exchange rules to allow NTQ annuities to fund LTCI premiums for one or both insureds who are married and filing taxes jointly. This modest enhancement would vastly expand LTCI coverage to trillions of dollars in NTQ annuities which cannot be utilized for long term care expenses (or premiums) without severe tax consequences.
- Changes in state regulation that are widely and uniformly adopted, such as partnership plans allowing, without additional rules, the non-partnership policies approved in their state. In particular, this would allow insureds to avoid unaffordable compound inflation and minimum benefit amount requirements. Another easy change would be to eliminate the risk based capital penalty that currently prevents insurers from seriously considering noncancelable LTCI policy designs.
Some companies are already starting to expand their product within current laws through offerings that appeal to a broader base of consumers by offering a unisex product through employers, creating single and ten pay alternatives, offering lifetime benefit periods, and offering return of premium death benefits that are payable in addition to LTCI benefits.
In my opinion we missed the mark on the LTC Partnership Program. It appears the hybrids have found their home with those that can afford single premium transfers or higher than traditional LTCI premiums and traditional LTCI has found its home on a budget. I don’t mind that view, however where we missed the mark is by requiring inflation on the traditional plans. If the biggest swath of buyers that could really benefit from LTCI plans is middle America, then don’t force them to add the most expensive rider to their contract. Don’t get me wrong, I believe inflation is important and, quite frankly, that’s what sets LTCI apart from hybrids—the ability to grow the benefits—but if we have something to lose, but not millions to lose, let us build the proper policy without having to slap inflation protection on there. Maybe just a higher daily/monthly benefit for a shorter duration is the answer.
Tax qualification of the Section 7702(b) stand-alone long term care insurance plans was a huge step. The availability of State Partnership to all fifty states an even larger one. Now we need to be able to offer clients the ability to pay for these plans with qualified funds, especially if it is a hybrid or combo plan falling under Section 101(g). They may be running their cash reserves down by paying for their parents’ care and childrens’ college educations, leaving them non-qualified cash poor. Being able to use qualified funds would require additional federal legislation. While this has been bantered about for many years, I firmly believe that the time for action is now. I hope that organizations like NAIFA, NLTCN, the Society of Financial Service Professionals, et al, as well as insurance carriers currently in the marketplace offering these products, will expend appropriate levels of lobbying to bring forth this necessary legislation—providing relief to consumers and promoting even greater sales.
I suggest expanding the question to include regulators as well as legislators and to include media. As noted in my first response, there is a lot the industry can do to provide improved messaging.
Government and media could provide better messaging as well. Things we/they could do:
a) Explain that past price increases on existing business have led to today’s prices being more stable. (Government and media reports on rate increases lead financial advisors and consumers to fear rate increases on policies being issued today. This is a “look through the rear window” approach, as I can explain.)
b) Government and media have publicized and questioned claim denials, sometimes being right but sometimes falsely accusing carriers. Why not publicize evidence that the industry is doing a good job?
- The Federal government engaged LifePlans to do a study regarding claim payment. The study concluded that the industry was doing very well.
- California published a study that was hugely biased against the industry. For example, if a client contacted an insurer during the elimination period and the insurer provided the desired information, CA counted that as a denied claim because no claim payments were due. Furthermore, their methodology ignored that claim later when it was paid! I successfully got CA to agree that their method was flawed, but they refused to issue a correction.
- The Independent Review (IR) process helps protect consumers. Each year, our Broker World survey publishes some data relative to IR. That data has been impressive for the industry, but we are limited in what we can obtain. I’ve asked regulators to get data themselves, or to ask me to act on their behalf, so that we can get better data.
c) Of course, the government and politicians continually give mixed signals, making it easy for people to conclude that the government will pay for care “by the time I need it.” Many years ago, some states did “Own Your Future” mailings in which they informed consumers that the consumer is primarily responsible for long term care expenses. We reported on results in the Broker World survey. It would be timely to send more such mailings now.
d) More states could adopt State Partnerships and the original four states could shift to the Deficit Reduction Act Partnership to provide more consistency.
e) The LTCI certification process could be improved in a variety of ways, leading to better education of advisors.
f) Slowing the fiduciary bandwagon might help. Emphasis on fiduciary responsibility discourages financial advisors from discussing long term care issues because:
- With increased documentation, they have less time to discuss ancillary issues, particularly as those issues then generate more need to document.
- The threat of fiduciary charges causes them to focus on the areas of their expertise. Discussing areas in which they are less familiar (long term care) exposes them to what they perceive to be disproportionate fiduciary risk.
- You might think FAs would then outsource long term care discussion to LTCI specialists. It does not always work that way because:
- Advisors are fearful of referring people to third-party experts because, if the third party screws up, they could lose their client.
- They also fear that if the third party screws up, they could be blamed (fiduciary).
- They also fear that the third party might poach their client or inadvertently introduce the client to a competitor.
g) The industry, media and others often suggest that LTCI should not be bought before age 60 (or so). That advice is incorrect, as we can demonstrate.
h) Protect the industry from people doing genetic testing, then buying LTCI if they have the APOE gene. We may need an assigned risk pool for people who fall into that category.
i) Tax breaks would help, but we should be able to sell without tax breaks.
j) One percent CBIO qualifying for Partnership can be important for core/buy-up programs.
k) By the way, the new NAIC Shopper’s Guide is significantly better than its predecessors. It will be interesting to see its impact. I’m not expecting much impact, because I think it is treated as a compliance document and is very long.
l) This strays to the combo side, but §101g features can be excellent contributions to long term care planning. Yet the regulators forbid the use of “long term care” relative to such features. I think that is a very counterproductive position.
The industry needs to improve significantly the quality of pre-qualification of health conditions. Doing so would lower the decline rate and also get more people insured. It would result in noticeably more interest in LTCI among financial advisors. How might we do so?
a) General agents could perhaps do analysis demonstrating the improved results for cases which were pre-qualified.
b) The message should be trumpeted repeatedly.
Q Much of the current long term care risk abatement activity seems focused on asset-based long term care solutions. What are your thoughts and/or experience with these products?
Asset-based LTCI is quite attractive to many insurance companies due to its minimal LTCI cost structure and its maximal appeal to consumers. It makes a lot of sense for anyone purchasing a life insurance policy to have this additional flexibility to use the life insurance proceeds to pay for their LTCI expenses, as long as they realize that if they need to do so, they will no longer have the life insurance benefits that instigated the original purchase. Likewise, if someone determines they need LTCI, and doesn’t need the life insurance coverage, this is a very expensive way to purchase LTCI. I would be hard pressed to advise anyone to buy one of these types of hybrids that only pay LTCI benefits up to the death benefit, if it is being bought for its LTCI coverage, while I would equally oppose not including it, at a minimal additional charge to a life insurance policy being bought for the client’s need for life insurance, just in case.
However, one of the hybrid designs, only offered by a handful of companies, is one that provides life insurance with LTCI and an extension of benefits rider that continues the LTCI coverage after the life insurance benefits are essentially exhausted, providing much more significant LTCI coverage especially if the compound inflation option is elected. With the liberalization of underwriting rules that are generally available on the life hybrids when compared to the stand-alone policies, it is a good fall back plan for even stand-alone LTCI specialists to have access to sell.
I have lots of experience with asset-based long term care planning solutions. They work where they work but they are not the be all, end all, for long term care planning. I still say you will never get more out of a life/long term care contract then you will out of a traditional LTCI policy. Now I have found that I have younger agents, who don’t have a history of explaining rate increases on older traditional blocks, and they are ok selling traditional LTCI—as they should be. You must understand the pricing of today’s policies and the rate increase regulations. On the flip side I have those that don’t ever want to have a conversation with a client about why their policy took a rate increase, so they gravitate to the life-based solutions. As an advisor to the advisors I have to keep my eyes and ears open to the industry and listen to what agents’ clients want their long term care solutions to do for them and pick the best one. Nothing is one size fits all.
There is no doubt that a great deal of the demise of the traditional long term care insurance market (declining from $1.024 billion of sales in 2002 to 2017’s $176 million—LIMRA statistics) can be attributed to fewer carriers in the marketplace and a decline in interest rates, as well as the attrition of the career agent forces with several of the major players. Factor in the advent of a wide range of asset-based products giving producers the ability to better tailor solutions to the desires of their clients—this has led to unprecedented growth in this market to the point that it is now surpassing the traditional market.
All of that notwithstanding, we are discovering that many financial advisors are not thrilled about losing the assets under management required to purchase these asset-based products because such purchases serve to deprive them of an ongoing stream of income. For this reason alone the pendulum is swinging back towards stand-alone LTCI.
In the same vein, all professionals (advisors, attorneys, other insurance producers) in positions that can be construed as possessing a fiduciary responsibility to their clients who do not broach the subject of LTCI in the course of regular reviews run the risk of being held personally liable under the Doctrine of Reliance. Courts are becoming increasingly sympathetic to the plaintiff bar bringing these claims.
I also believe that there is still no better way to leverage a client’s money than with a stand-alone LTCI insurance product. Factoring in the ability for the monthly maximum and pool of benefits to grow by virtue of inflation protection riders, as well as the tax qualification and partnership considerations of these plans, I suspect that the pendulum will continue to swing back in the direction of traditional stand-alone coverage.
a) Linked products could appropriately be called “asset-based” in the past because they were usually sold as single premium policies which involved moving an asset into the combo policy. Today, most of these policies are not sold as a single premium. Therefore the “Combo,” “Linked” and “Hybrid” terms fit, but “asset-based” no longer fits well.
b) These are excellent alternatives to stand-alone LTCI. For many clients, linked benefit should be the default solution.
c) However, often they are sold illogically. For example, as indicated above, stand-alone LTCI policies issued today do not have the premium instability of the older LTCI policies. However, regardless of whether the client favors linked policies for a sound reason or not, it often makes sense to provide what they are requesting. We don’t do people a favor if our educational efforts result in them doing nothing, especially if they otherwise would have secured valuable protection.
d) The industry and regulators could make it easier to compare linked benefit products to each other.
e) Comparing linked to stand-alone also is difficult. Insurers could position linked products more effectively in their portfolio, etc.
f) The shift toward linked benefit policies is not as momentous as people think. The statistics are distorted because:
- They are based on premium rather than eventual coverage.
- Single premium linked benefit policies and 10-pay linked benefit policies distort the results.
- A higher percentage of stand-alone policies may have benefit increase features, which is significant to future coverage.
- However, the average benefit period of linked policies with extensions of benefits might be longer than for stand-alone (although shared care should be factored in).
- Lots of statistics include, in the linked benefit totals, policies with no extension of benefits. Depending on the purpose of the analysis, including such policies can be misleading.
Q In your opinion, should LTCI professionals be shifting a significant amount of their effort to point-of-care planning?
Although I would not encourage agents to emphasize selling to those already needing care, and with a very limited life expectancy, I would always encourage LTCI professionals to be knowledgeable and have access to all possible LTCI solutions for their clients. However, I believe that point-of-care solutions (essentially substandard annuities packaged inside an LTCI policy form) are a very limited market opportunity for anyone involved in any other form of LTCI planning.
If by that you mean maximizing their assets, using all avenues to maintain choice, then I would say that we’ve forgotten the definition of insurance. Why would one use every penny from every dollar of their own money when they could pay a premium and transfer the larger risk to the insurance company. If choice or control is the concern, there are options still available that allow for that flexibility. It’s called a cash benefit or an indemnity contract. That’s your maximum flexibility. Therefore, working with someone that maintains knowledge of the long term care industry is critical. If this isn’t your focus, let someone else do the hard work and you just keep options open for your clients. I have found that I would rather have a plan in place before, rather than having to plan at point of crisis. Planning is the key to anyone’s financial future and, of course, all well laid plans can change, but you must have a road map to know where you are going.
This business remains all about it being client-centric.
The wide array of products (despite the shrinking number of carriers in the marketplace) both allows and requires us to genuinely listen to the client, perform serious fact-finding, and then serve as their advocate by providing them with both suitable and appropriate coverage—whether it is stand-alone, hybrid, combo, short term, or critical care coverage.
Remaining client-centric, demonstrating the utmost of professionalism, and constantly growing in product and industry knowledge, will allow LTCI professionals—Planning Advocates—to better serve their clients.
a) I think we can and should be doing a lot more to help people who currently need care and/or are caregivers.
b) I think we should be doing more to help people who are uninsurable.
c) I think we should do more to help even insurable people reduce their exposure to long term care and reduce the likely cost and caregiver burdens.
d) However, I’m not comfortable with the word “shifting.” I think doing a) through c) will give us an opportunity to do more effective family long term care planning which might result in more LTCI policies being sold.