You can’t move against the winds of change. Stand-alone long-term care insurance (LTCi) is no longer the only form of protection consumers have against unexpected health care costs during retirement.
With their unique designs, non-traditional forms of LTCi coverage, like hybrid life and annuity LTCi plans and short-term care insurance plans, have taken the market by storm. Advisors looking to manage successful practices must present these products as reliable alternatives to traditional LTCi, taking care not to overlook the latter’s inherent value. Why?
Guaranteed Paid Benefits & Other Perks
Though they can be more expensive than traditional policies, non-traditional LTCi plans like hybrid life and annuity combination plans can guarantee something “use-it-or-lose-it” stand-alone LTCi plans don’t: paid benefits even if LTC coverage isn’t needed.
Non-traditional LTCi plans can guarantee paid benefits even if LTC coverage isn’t needed.
Generally speaking, policyholders are not guaranteed a benefit with traditional LTCi. They could pay for a policy for years, and then never need the policy to pay out. With hybrid LTCi, policyowners can basically buy a special type of annuity or life insurance policy and then use the policy’s cash value or death benefit to pay for LTC expenses. If they end up not needing LTC or don’t need to use all of their policy’s funds to cover any care they do need, the remaining funds can go to their designated heirs when they pass.
Depending on the carrier and product, underwriting for hybrid LTCi plans may be streamlined, instead of full, which is also a common caveat associated with traditional LTCi. Additionally, with hybrid annuity/LTCi and life/LTCi policies, policyholders don’t have to worry about potential rate increases – something that keeps some prospective buyers from purchasing traditional LTCi.
Helping Those Who “Can’t” Be Helped
Imagine you have a client named Bob. Let’s say he’s either a healthy 84-year-old man or a 56-year-old man who’s had some health issues. He wants to purchase some form of financial protection against major unexpected health care costs in retirement. Can Bob purchase traditional LTCi in either scenario?
He can try, but his chances are slim to none. Traditional LTCi carriers typically only issue policies up to age 79 and can be difficult to qualify for if your clients have certain pre-existing conditions that make them ineligible for LTCi.
What if Bob is a healthy 65-year-old man, but he’s only able to spend a max of $45 every month on a plan? Or what if Bob’s healthy identical twin sister Barb is living on a similar budget and also wants coverage? Would a stand-alone LTCi policy be a good fit for either of them?
Those who may not be able to get an LTCi policy, may still be able to qualify for and afford a hybrid annuity/LTCi or STCi.
Probably not. Traditional LTCi rates are gender- and age-based. They can get expensive, especially for women and older seniors. We’re talking an average annual premium of $950 for a single man age 55 and $1,500 for a single female age 55 for a $165,000-benefit policy with no inflation protection, according to the 2024 American Association for Long-Term Care Insurance (AALTCI) annual Price Index survey.
Though Bob or Barb may not be able to get an LTCi policy, they may still be able to qualify for and afford a hybrid annuity/LTCi product or short-term care insurance (STCi). Hybrid annuity/LTCi policies tend to have less underwriting than life/LTCi hybrid and traditional LTCi plans. And while an STCi policy doesn’t offer individuals coverage for as long as an LTCi plan, it could still protect them from some of the costs of their care.
Keeping Traditional LTCi in Mind
While non-traditional LTCi products have become increasingly popular and may open the doors to coverage for more individuals, they shouldn’t replace stand-alone LTCi products altogether. It’s important to recognize traditional LTCi is not dead yet.
It’s important to recognize traditional LTCi is not dead yet.
There’s a chance that someone could buy a traditional LTCi policy, pay thousands of dollars in premiums over several years, and never need the policy. Should that someone go with a non-traditional form of LTCi and get fewer LTC benefits? Maybe, but it really depends on what the individual can afford now and over time, their need or desire for (more) life coverage or guaranteed income, and if they view their risk of needing LTCi like they view their risk of needing cell phone, car, and house insurance.
In the words of one LTC industry professional, “If we, the LTC brethren, continue to market the same way we have over the last 15, 20, 25 years and expect sales to change, we’re kidding ourselves.” If you’re looking to continue growing your LTC business, you can’t ignore which way the wind is blowing. You can keep your roots, but stay flexible.
Not affiliated with or endorsed by Medicare or any government agency.
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