The Elephants In The Room

If you want to increase your success rate, double your failure rate.
—Thomas John Watson, Sr., Founder of IBM

If it’s true that every failure gets us one step closer to success, then we’re getting closer to solving the extended care planning puzzle for more Americans. Having spent the last two years working directly with consumers, their families and financial advisors in the throes of ongoing unplanned-for long term care events, I’ve had a belly full of “failure to plan.” At the risk of sounding a negative note, let me be clear: There’s plenty of blame for this failure to go around.

The fact is, though, that the rapid growth and availability of combo long term care planning solutions gives the insurance industry, producers, financial advisors and many consumers another chance to get on the right side of this national epidemic. Here’s a key observation in the 2016 Society of Actuaries Post-Retirement Experiences of Individuals Retired for 15-years or More:

“…many of the unexpected expenses in retirement could be mitigated with better planning and financial risk products. Few have annuities, long term care insurance, reserve funds for home maintenance and repairs, or other products to help them manage expenses in retirement. A number have life insurance coverage, but coverage levels are often low and intended only to cover funeral costs. Use of these products might help to prevent financial shocks in retirement.”

In my experience, mid-market consumers are most negatively impacted by the unplanned-for long term care event. The affluent can afford to self-fund the risk or purchase various insurance planning solutions. Low-income Americans generally get support from family and/or state and federal safety nets.

Who and what is the mid-market? For this we turn to a Society of Actuaries (“SOA”) presentation prepared by Vince Bodnar, Stephen Forman and Sania Zehinder in 2016 entitled Long-Term Care and the Middle Market. This report identifies two primary components of this demographic:

Middle Mass

  • 55-64, average income $75,000, average assets greater than $100,000;
  • 83 percent of the market for long term care insurance (LTCI);
  • Low ability to fund catastrophic costs out-of-pocket; and,
  • Good ability to pay for LTCI.

Mass Affluent

  • 55 – 64, average income $132,000, average assets approximately $400,000;
  • 17 percent of the market for LTCI;
  • More discretionary income to spend on LTCI; and,
  • Agents/advisors prefer this group.

What do these consumers think of and expect from the life insurance industry? The good news is that they generally trust us, this according to the Ernst & Young— Voice of the Customer Survey (2012), Deloitte Life Insurance Consumer Purchase Behavior (2016) and the SOA Middle Market Life Insurance Thought Leaders Report (2016). In 2017 LIMRA reported that life insurance ownership has bounced off its 50-year low of 2010 with 8 million more people insured. Just over half the U.S. population now owns some form of life insurance, group or individual. However, why don’t more people own this important personal financial safety net? According to the SOA, it’s because no one asked them to buy!

Is life insurance combined with chronic illness (§101g) or long term care (§7702b) benefits the planning answer for mid-market consumers? In many circumstances yes, but let’s consider some aspects of our past failures in order to get behind the right solution for America.

Right-Sized Potential Risk Will Lead to Affordable Solutions
While we cannot deny the existence of the catastrophic long term care claim, this can no longer be our primary sales focus. A 2016 report by the U.S. Department of Health & Human Services indicates that the average cost of HIPAA level long term care support services for adults turning age 65 between 2015-2019 is $75,900. The average duration of claim for men is 1.5 years and for women 2.5 years.
When most consumers need care, all their resources generally come into play: Monthly income, savings, investments and sometimes life settlements or reverse mortgages. Therefore a $50,000 to $75,000 life insurance policy with a two percent or four percent per month accelerated death benefit rider will likely be enough to allow them the private paid care they want and need. This level of coverage has been shown to be affordable to mid-market consumers in their 50s and 60s and we’ve eliminated a primary objection to traditional policies: “What if I never need care?”

Guaranteed Premiums, Values and Benefits
Agents and consumers who have suffered through the travails of ongoing traditional LTCI in-force rate increases understand the value of guaranteed premiums. Guaranteed whole life and universal life insurance policies provide a stable platform for chronic illness benefits, and regardless of the policyholder’s future, someone will benefit from the policy sold.

Meaningful Chronic Illness or Long Term Care Benefits
HIPAA (§7702b) benefit qualification is the gold standard for long term support services. However, some chronic illness benefits (§101g) allow for qualification that operates as a “kissing cousin” to §7702b. Either type provides predictable and meaningful long term support service benefits to the policyholder without unknowns. Advisors beware of policies offering no-cost benefits: There is still no such thing as a free lunch.

Chronic Illness benefits For All levels of Care and to Family Members
In today’s world, indemnity benefits are highly valued. With §101g plans, after claims qualification, the policyholder can expect a steady stream of monthly payments as long as they continue to need care. Like §7702b plans, annual requalification is required. Importantly, there’s no need for the client to submit receipts for services rendered and no restrictions on who can be paid.

Residual Benefits for Final Expense
One of the primary reasons mid-market consumers purchase life insurance is to provide their families with a final expense fund at their death. Many life combo products provide a residual death benefit for this purpose.

Simple Application and Policy Fulfillment Process
Online and drop-ticket technology has become ubiquitous in our industry. Limiting the need for body fluids, paramedical exams and attending physician statements for faster issue is the new frontier for quality life combo products. This process reduces policy approval, issue and commission payment times into the 10-day range. This is a huge boon to agents and advisors that sell over the phone or through screen-sharing technology, and will greatly simplify the sales process even when you meet a client in your office.

One More Important Item
Life combo policies using §101g language do not require agents to take the eight-hour long term care certification course every two years. However, expect carriers using §101g to have a prerequisite for online product-specific training.

The Elephant in the Room
Traditional long term care insurance failed to achieve market acceptance largely because many agents and financial advisors were hesitant to talk to their clients about the risk or the solutions. Traditional policies can be complex and difficult to explain to consumers. Customer objections and involved underwriting made it easy for brokers and advisors to move on to easier and more profitable products. Will simplified and more straightforward combo products motivate producers, including life, annuity, investment, Medicare supplement, health, and property and casualty, to take another shot at addressing this issue with their clients?

We have an opportunity to make an important difference in the lives of our customers and their families. I have observed the suffering caused by an extended care event to those without the extra $2,000 per month to make a difference in the choice and quality of care. This has informed me that most consumers, provided with the right information and solutions, will choose to protect themselves. It’s up to the insurance industry, agents, and advisors to tell the story and provide the answers.

Barry J. Fisher is is CEO of Blaze ‘n Bear Insurance Services, Inc., and a Principal of Ice Floe Consulting, LLC. Checkout the latest Ice Floe Consulting research at LTC 2020 (

Fisher can be reached by email at Phone: 805-635-7200.