Getting Ready

The average age at which people are buying LTC policies is now in the upper 50s and early 60s, whereas a few years ago it was around age 65. Why the drop? It's mainly because consumers are recognizing that the earlier they apply for LTC insurance, the more likely it is they'll get coverage, and at a cheaper price. "Two out of ten people that want LTC are turned down because of medical reasons," notes Robert Davis, president of Long-Term Care Quotes, a consumer research center and independent agency specializing in LTC insurance in Chandler, Arizona. "Most carriers will reward good health through a price discount of 5% to 15%," he says. Planner Stein adds that the earlier consumers buy LTC coverage, the cheaper the cost will be over their lifetime. "The amount that somebody pays for LTC insurance depends upon the benefits they choose and also their age," Stein says. "Each year that they wait, they increase their cost a certain percentage, and the percentage increase is high enough that if you wait a year to purchase, it increases the total amount of premium you'll pay over your lifetime."

But some consumers are hesitant to buy LTC insurance in their 50s because they fear they'll be paying premiums for 30 years. This is a legitimate concern, Davis says, so insurers are responding with new products called accelerated pay, or limited pay, policies, which allow consumers to pay off the policy in ten years, or pay it off at age 65, when they would typically retire.

While insurers are coming out with new policies and offering more benefits to existing ones, they're also raising their premiums. On new products, "we're witnessing prices that are anywhere from 15% to 40% more than they were a couple years ago," Davis says. "But these are very benefit-rich policies. We haven't reached the point where companies are streamlining policies in order to keep costs down."

GE's Stinson says the uptick in premiums is indicative of where the LTC insurance product is in its short 25-year "life cycle." Insurers have done a good job of building LTC products that provide the features and benefits consumers need, Stinson says. Now, policies are evolving "to keep pace with advancements in the medical industry in terms of medical technology, and also advancements in how care is provided through assisted living facilities that didn't exist a decade ago." Part of the LTC product's evolution is "taking into account the things that drive profitability, or a firm's ability to pay claims," Stinson says. "Many [insurance] firms have been overly aggressive in an attempt to capture market share, and have underpriced the product." Stinson says the single biggest reason premiums are going up is due to "voluntary lapses"–assessing how many people are actually going to hold on to the policy. Unlike a term-life product where the average "lapse point" is from five to seven years, Stinson says, a LTC portfolio has an average life of more than 20 years because a client buys the product to use when they're in their 70s and 80s. "When you have a miss on your voluntary lapse assumptions of 200 to 300 basis points over 30 years, it's a huge assumption," he says. "And if the [insurance] company has under priced the product and missed that point, the only way they can keep the policies in force and can continue to pay claims is to raise rates."

Better Buy Soon

Planner Stein says that consumers who want to get a "good deal" on two of the best features in an LTC policy–the unlimited benefit period and the 5% compound inflation adjustment–should buy an LTC policy within the next six months. The ratings agencies are pressuring insurers to raise the premiums on these two features because the payouts are "potentially enormous." Of the two features, Stein says all policyholders should buy the 5% compound inflation adjustment feature, and quickly. When the price goes up in the next seven to 12 months on this feature, he says, "Everyone is just going to have to bite the bullet and pay it."

When insurers raise premiums, they naturally run the risk of losing clients. But both GE and John Hancock say they have continued to add benefits to their policies without increasing the price. Consumers are particularly fond of Hancock's Custom Care, Abraham says, because it includes a benefit allowing up to four extended family members to be covered by the same policy.

GE's Stinson says consumers are looking for more services from insurers that center around "wellness." So it recently partnered with a company called Lifeline Screening, which provides mobile body scans for policyholders.

Because many advisors aren't well versed in LTC insurance, they often decide the task is too daunting, and refer clients to a specialist in LTC insurance. That's okay, says planner Stein, because it takes time to customize the client's policy and compare the nuances of each insurer's LTC offerings. Never mind the lengthy and sometimes awkward conversation about a client's health. That's why GE provides a wholesaling model for advisory firms, says Stinson, helping advisors explain LTC insurance and assisting with the sale.