Long term care insurance sales in the affluent market have remained relatively flat in recent years, in part because the products are relatively complicated and many states require special licensing to sell them. But there's another reason for the level trend: Many high net worth individuals believe that being self-insured or maintaining a personal reserve fund is a more attractive option.
There is, however, a unique alternative in the marketplace that provides for a broad range of coverage: LTC-linked or combination insurance.
Combination policies are life insurance and annuity products with LTC riders attached that can be used to provide LTC coverage, life insurance if necessary or a money-back guarantee. New combination products provide income tax-free LTC reimbursements and pass any unused portion to beneficiaries–again, income tax-free–through a death benefit.
As is the case with disability insurance, getting a client to believe that he or she may at some point need long term care is a hurdle that must be overcome. Many clients simply believe they will never need care–be it at home, in an assisted living facility or at a nursing home. Everybody dies, they say, but not everyone will need to use LTC in his or her lifetime. Rather than pay premiums for a benefit they feel they will never use, they would rather put those dollars in a retirement plan or another type of interest-bearing account.
The truth is, people do need LTC, and it's not cheap. According to a May 2003 study conducted by The American Society on Aging, "Americans Fail to Act on Long-Term Care Protection," 70% of Americans currently 65 and older will need some type of long-term care. In addition, more than half of all men and women turning 65 will use a nursing home before they die, and about 20% will spend 5 or more years there.
The average annual cost of nursing home care was approximately $70,000 in 2004. The average duration of care is approximately 6 years. The average annual cost of in-home care was $155,000 in 2004.
At those levels, it wouldn't take long to wipe out one's assets. In fact, LTC represents one of the greatest threats to retirement income security. Essentially, the high net worth individual who is not interested in LTC is saying, "I can self-insure for that potential liability."
Combination products can be particularly attractive when presented in terms of repositioning assets to provide value to one's family, rather than simply as costs and expenses. Since policy designs are based on the notion of asset transfer and leverage, clients should know that $1 invested in a combination policy will yield $6 of LTC coverage and/or $2.25 of life insurance protection.
