New Long-Term-Care Insurance Trends
Current solutions are easier to understand, provide value whether care is needed or not, and are more modular and affordable.
New Long-Term-Care Insurance Trends By Larry Nisenson
As the nation’s population ages, the need for long term care insurance (LTCI) has never been greater. LTCI carriers are responding to the financial challenges of aging by creating more flexible, affordable products to better meet consumers’ needs and making radical changes to fix the pricing problems of the past.
As we look ahead to the future of the LTCI industry, there is a movement away from the one-size-fits-all approach of the past to a continuum of solutions that are easier to understand, less complex, provide value whether LTC is needed or not, and are more affordable and modular so that consumers are not trying to solve for the entire need at one time and can buy protection as their budgets allow.
While combo or hybrid products incorporating life insurance or an annuity with LTC benefits have gained in popularity in recent years, the industry and public policy advocates are exploring a number of exciting new concepts.
The Society of Actuaries recently published a report1 on the viability and consumer appeal of two potential products. One of these is "life stage" protection insurance, which would provide a term life insurance benefit up to age 65 or retirement, when consumers need family protection the most. It would then provide LTC benefits from age 65 and on.
The other is a "retirement plus" approach, which allows tax-advantaged savings for future LTC needs with an insurance element that can be used to supplement savings if LTC is needed.
Another example is an LTC add-in to Medicare supplement plans, which is envisioned as a mandated offering in all Medicare supplemental plans sold in a state, with an opt-out for consumers who already had equivalent LTCI protection. It would pay for qualifying home and community services, but not for assisted living or nursinghome care.
Recent innovations in LTC funding solutions also are addressing the needs of older people in ill health who find themselves in immediate need of care and worry about outliving their money. Several carriers are now offering medically underwritten, single premium immediate annuities, which convert assets into a guaranteed, monthly income that is paid for the life of the care recipient. The monthly payment is generally larger than traditional immediate annuities if the care recipient is less healthy and/or needs care. The income begins immediately and can be used for any purpose, such as for care or for medical or living expenses.
A New Approach to Pricing
To mitigate the need for large premium increases in new traditional LTCI policies going forward, a handful of state regulators are currently considering piloting a promising new way to oversee LTCI pricing. This new approach will behave similarly to homeowners and auto and health insurance, with premiums adjusted annually as claims experience and projections emerge, resulting in smaller, more frequent increases or decreases if needed, ultimately reducing the likelihood of a policyholder experiencing several years of level premiums followed by a significant rate increase.
In the past, carriers had to wait so long for actuarially justified increases that they incurred large losses and were forced to raise premiums by double or even triple digits. Although carriers are entitled to receive these actuarially justified rate increases when claims are anticipated to be higher than originally expected, they are difficult for policyholders, carriers and state regulators to manage. This solution could help bring more carriers back to the industry and offer much needed predictability in pricing to consumers.
Also, carriers now have the benefit of substantially more LTCI claims experience under their belts, which should help them more accurately price new policies.
Implications for Advisors
As people live longer and care costs continue to rise2, financial advisors need to talk to their clients about how they will pay for ever costlier LTC services as part of retirement planning. According to a recent PwC study,3 the current average lifetime cost of long-term care is $172,000, a significant amount of money for many people. Long-term-care protection, in whatever form that makes the most sense to your clients, can help ensure that they will be able to live out their lives in the manner in which they wish, with dignity, choice and control.
Larry Nisenson is chief commercial officer for Genworth’s U.S. Life Insurance division.