Sales of long-term care insurance (LTC) have been plummeting. In 2004, sales of individual LTC policies dropped 25% over 2003 sales, marking the biggest decline since LIMRA International started tracking individual LTC sales in 1988. According to LIMRA, 29% fewer consumers bought LTC insurance in 2004 than they did in 2003.
Why the dramatic drop in sales? Brian Peterson, VP of long-term care sales for Allianz Life Insurance in Minneapolis, chalks it up to consolidation in the insurance industry–with fewer insurers offering LTC insurance–a tougher underwriting market, and higher premiums. Investment advisors and financial planners, too, are doing little to bolster sales. In fact, more consumers are now getting LTC coverage through their employers than they are via an advisor, says Robert Davis, president of Long-Term Care Quote (www.longtermcarequote.com), who advises consumers and advisors on LTC insurance policies. More employers are starting to offer LTC coverage, Davis says, because of the tax advantages.
Many advisors are not recommending LTC insurance to clients because they don't understand it, says Arthur Stein, a planner with First Financial Group in Bethesda, Maryland, who specializes in LTC insurance. Advisors "treat [LTC] with a different set of standards than with other forms of insurance, and there's no reason to," Stein says. "LTC meets all the standards of insurance, and it gives protection that people want in other aspects of their lives." Ninety-five percent of Stein's clients have LTC coverage, he says, with most of them opting to buy at a younger age than was previously true, around 54.
Moreover, many advisors, Stein says, are erroneously recommending self-insurance instead of LTC. Davis agrees that there is a real lack of understanding among advisors about the advantages of LTC coverage. Davis says because LTC can be complicated to understand, he encourages advisors to outsource LTC coverage to an independent agent or agency that specializes in LTC insurance. "Planners need to understand that LTC insurance protects assets," not only the clients', but also the planner's assets under management, he says. "A planner would hate to see a client be forced to pay out from $50,000 to $100,000 per year of their assets for a long-term care need."
The Cost of Care–and LTC Premiums–Are Rising
Having to pay that much out of pocket for long-term care would even be on the low end, depending on where you live. According to Genworth Financial's 2005 Cost of Care Survey, the average annual cost for a private room at a nursing home is now $69,400, or $190 per day, a 6% increase over 2004 rates. If you live in Alaska, which has the highest rates, you'd fork over $201,000 per year for a private room. Costs for similar care in New York City, the second highest, will run about $134,000 annually. Assisted living facilities are cheaper, but their rates have also increased. An average annual stay at an assisted living facility costs $30,300, a 5% increase over Genworth's 2004 survey rates. "LTC insurance is anti-nursing home" coverage, Stein says, because while it does pay for a nursing home, "people get it because it pays for home care and assisted living facilities–the two places where people want to receive care."
