How Many Clients Really Need Long-Duration LTC Protection?

Are agents losing sales because they are selling too many long term care insurance policies offering costly long-term benefits? That could be one conclusion suggested by a recent Milliman Inc. study that found the vast majority of LTC claims were for relatively short claim periods.

Some producers accept the finding of the study but dispute that it implies they should be selling more low-end policies.

Jane Nobiletti, a brokerage manager for Agent Support Group, New York, believes the study's findings will become outdated as LTC insurance clients become younger.

"Long term care insurance was once sold mainly to 70-year-olds," she observes. "People see what happened to Christopher Reeve and Michael J. Fox [actors disabled at a young age] and realize bad things do happen to younger persons."

Now that the product is being marketed to younger people, Milliman's findings that only 1.4% of all LTC claims last 5 years or longer will become less and less accurate.

For one thing, there have been great advances in rehabilitation for sick and injured people. For another, people in general also are living longer, which means that seriously injured people are going to live longer with their disabilities, she notes.

"If younger people are coming into the market, will claims be longer in duration?" she asks. "They may very well be. Planning for shorter periods of disability is okay, but people should be thinking about what could happen to them. The fact is, 15% of people who get disabled stay disabled."

Many who have LTC insurance fail to make claims simply because they are afraid to use them up, points out Ronald Brie, a specialist with LTC Financial Partners, New York. "Often, they end up dying without using their plan at all," he says.

It's the agent's responsibility to design a plan for each client that's not only affordable but also meaningful, Brie argues. To his way of thinking, a policy that protects the client from skyrocketing health care costs 10 to 15 years down the road is paramount.

"Yes, I will give clients bare bones coverage if that's all they can afford, but if I'm working with 50-year-old, they must have inflation protection. I will not offer a plan that doesn't have it. I might give them a long waiting period or take away a restoration-of-benefits rider, but they have to have inflation protection."

The agent must look for protection that's within the means of the individual while at the same time considering what the real objective is in designing an LTC insurance package, says Bob Miller, a specialist with LTC Financial Partners, Kirkland, Wash. And don't treat a prospect's price objections too seriously, he advises.

"Very rarely is affordability the true objection," he says. "Sometimes it's voiced that way, but the real objection is different."

What the client is looking for is a policy designed for the person's needs, considering age, income and marital status, he says.

If cost saving is the objective, Miller declares, "a short, fat policy often is going to fit the consumer best." By "short," Miller means short period, and by "fat," a high dollar claims reimbursement.

Many consumers say they'll take, say, a policy offering relatively low reimbursement on the assumption that if they need to file a claim, they can coinsure part of it.

"Where that logic is flawed is where someone has $100,000 to $200,000 in assets but has a cognitive impairment that will need an unlimited care period," he says. "Even with someone having $1 million in liquid assets, you have to understand the income scenario when one spouse predeceases another. The client appreciates it when you design the plan around such needs."

For example, with couples, Miller favors offering a shared-policy rider. With this rider, each owner gets 4 years of benefits. Then if one gets sick and uses that up, he can use whatever's remaining on the other spouse's policy.

"That adds 10% to 15% to cost but gives the client a lot of flexibility when cognitive impairment strikes," he says.

When Milliman looked only at policies with unlimited claims periods, it found that 4.3% of LTC claims had lasted 5 years or more, using 2003 data. Because many of those claims were ongoing, however, the final percentage of claims of 5 years or more would probably be higher, Milliman notes.

Also telling, however, is that almost 10% of the 2-year policies and 8% of the 3-year policies were terminated due to exhaustion of policy benefits. For 5-year policies, only 5% were exhausted for that reason.

Milliman also found, however, policies offering 3 years of coverage were up to 39% less expensive than unlimited-period policies, and those with 2-year limits offered up to 53% savings.

This article first appeared in the August 2005 issue of LTC e-Wire, an online publication of National Underwriter Life & Health.

If cost saving is the objective, "a short, fat policy often is going to fit the consumer best," says one advisor

How Many Clients Really Need Long-Duration LTC Protection?

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