As a 23-year veteran of the long-term care insurance industry, I've seen plenty of changes. Carriers have come and gone, rates have gone up, and policies options have changed. But there are still a few "myths" that persist, and I think it's time for a few of them to be revisited – and challenged. In fact, I am quite sure this article is going to make some people unhappy. Let's just get on with it, shall we?
Myth No. 1: Stick with a carrier who's been writing LTCI for 10 years or more.
This might have been true back in the mid 90′s when no one really had a good feel for what was going on in the industry. Then, LTCI policies were priced by actuaries whose primary experience was in health insurance, underwritten by underwriters whose primary experience was either health or sold by agents who primarily worked the Medicare and senior market. My, how things have changed.
These days having 10, 15 or even 20 years of policies on your books is more of a liability than anything. That's an awful lot of "junk in the trunk" that was either not priced right or wasn't underwritten correctly, or both. And as we've seen, carriers are scrambling trying to figure out ways to make those older blocks profitable and stable without alienating their policyholders or agents.
Newer entrants into the marketplace have quite a few benefits going for them. First and foremost, it's the "knowledge pool." There are many people who have been in the industry for 20-plus years and have a lot of experience with the issues mentioned above. Whether it be actuarial, policy design, underwriting or marketing, there are plenty of industry experts who have the experience to know what works and what doesn't.
And, of course, there's the pricing aspect. We now know these polices aren't going to experience the same lapse ratios as other health products. We know how to price a cost of living rider correctly. We have a better understanding of limited pay options and how those should be priced. While we have a more expensive product than we had 15 years ago, it's better for the industry and your clients.
So, overall, sticking with a carrier just because they have many years in the business is not a good enough reason. Don't be afraid to look at the newer entrants. The chances are very good the newer policies will be priced better and be more stable than their older counterparts.
Myth No. 2: No one buys lifetime anymore. A three-, four- or five-year policy is good enough.
This is a blatant spin by the insurance carriers to get you – the agent – to sell anything. Once the carriers realized they were pricing their lifetime benefits incorrectly and adjusted those figures, lifetime benefits became pretty expensive when compared to their older counterparts. Overall, they are still a great deal.
But in a sales environment where clients were complaining that the insurance costs too much, rates were starting to rise, and no one could figure out exactly how to sell this stuff, the carriers had to find a way to get agents to sell their products. The only recourse was to convince you – the agent – lifetime benefits weren't all that important. This attitude flies in the face of logic. Lifespans are getting longer, not shorter.
I recently had to deal with the family of an 82-year-old woman who has been in an assisted-living facility for the last six years. Her policy was paying the bill. Guess what happened? Her policy ran out. Her family went into panic mode. Suddenly, they were faced with paying a $4,000-a-month bill on their own. And while they were trying to decide how to do that, the bill went unpaid for four months.
