The Long-Term Care Planning Evolution
....and the demise of Traditional Long-Term Care Insurance
The VCR, typewriter, analog film, and floppy disks…..Each was a great (and profitable) product, and each is now on the scrap heap of consumer product history. In the financial services arena, it may now be safe to add Traditional Long-Term Care Insurance (LTCi) to that list. Go ahead and mark the date - November 10, 2016 - as John Hancock announced their decision to discontinue the sale of individual LTCi policies.
Some may find it shocking that one of the largest sellers of LTCi is leaving the market while others, like myself, see it as simply a natural evolution. Even Jesse Slome, the president of the American Associate of Long-Term Care Insurance “was not surprises; this was inevitable.” There comes a point when one must ask a very simple question: Given the alternatives in the marketplace, is there consumer value in Traditional LTCi?
Well, John Hancock pretty much answers that for us as they.....
“will continue offering hybrid long-term-care products, which offer LTC coverage as part of an accelerated benefit rider on a life insurance policy. Sales of these sorts of products have ballooned industrywide as traditional long-term-care insurance sales have dried up.”
Rather than give a eulogy for Traditional LTCi, it’s time to talk with consumers about the reasons Long-Term Care planning is important and how the market has more diverse solutions than ever before.
For many years, I have been hosting monthly Lunch & Learns for advisors to drive home this point. At each event, I explain the “Evolution of LTC Planning” – and financial planning in general – which has slowly pushed Traditional LTCi to the point of extinction. Today we can create a Long-Term Care plan offering (1) Cost Certainty, (2) cash value and (3) residual/death benefits. Plus, depending on the funding source(s), it’s possible to create a plan reallocating existing savings, annuity or life insurance dollars with ZERO out-of-pocket expense.
The value of Traditional LTCi has likely disappeared as more consumer-friendly solutions are an ASSET rather than an EXPENSE!! The need for Long-Term Care planning is not going away, however the solutions to address that need may no longer include Traditional LTCi.
Preventing Financial loss and Promoting Financial Gain
8 年Long term care is your niche Mike. Thank you for being an experts and I appreciate your help.
I protect people, paychecks, families and futures, by specializing in Long Term Care Solutions & Disability Insurance
8 年Good points, hybrids do offer a great deal of value, but only for the right client. If your 65-year-old client is relying upon his or her savings and investment portfolio for income, and can't afford to set aside $100K to fund a single-premium Life & LTC hybrid plan, then the LTC protection offered by any on-going premium, life & LTC hybrid is going to be vastly inferior to that provided by a traditional long term care insurance product, and more expensive. Yes, traditional LTC insurance has had a rocky road. Yes, most of the big carriers are gone. But we just had a carrier enter this market for the first time in years - National Guardian Life - and they have two significant advantages that Hancock, MetLife, CNA, and Unum didn't: First, they're entering the market with a product that's priced from day one with extremely conservative assumptions based on 30 years of experience that the other carriers didn't have when building their blocks of business. A carrier building a product today has 16X as much claims data to build into their pricing. They're using drastically lower - almost non-existent - interest assumptions, and they know that, once this coverage is on the books, almost nobody will ever let their coverage lapse. All of this affects pricing, and the earlier companies didn't have this knowledge to work with. Second, they don't don't have a massive, unprofitable block of under-priced business hanging over their heads, dragging them down and making it impossible to turn a profit in the LTC business. I hope we see more companies enter this market over the next few years. Disability insurance went through this same thing in the 80s. There were numerous companies selling extremely liberal products, and the industry was forced to go through a massive transformation. Contracts changed, prices increased, and carriers left the market. But today we have a vibrant DI market with a handful of strong, dedicated carriers selling competitively priced, effective contracts. I certainly do use hybrids when they're right, and when they provide the most effective coverage based on the client's needs & circumstances. I educate my clients about ALL their options, but about 70% of them still choose traditional LTC insurance.
I help consumers, financial planners and members of the media evaluate long-term care insurance options.
8 年Remember the "IBM PC" and "PC-compatible". When IBM, the world's standard for personal computers, stopped selling personal computers, did that mean that personal computers would go away? No. Since IBM stopped selling personal computers over ONE BILLION personal computers have been sold. IBM got out of manufacturing personal computers because they knew they could make more money selling high-priced consulting services, not low-ticket items like personal computers. John Hancock's last 2 "innovative" products were terrible! Their LTCi sales are down almost 50% since 2014, while other LTC insurers have had double-digit growth over the same time period. This year John Hancock's LTCi sales accounted for less than 7% of the industry's sales. The facts are, that in nearly every case, a Life/LTC combo policy is priced MUCH higher than a long-term care policy. No one saves money when they buy a Life/LTC combo policy. It's considerably MORE expensive to buy a Life/LTC combo policy than it is to buy a traditional LTC policy. I just ran some quotes using the most competitively priced combo policy. A married couple, with average health, both age 61, non-smokers, can share $250,000 of LTC benefits for $4,432 per year. That same couple can get $250,000 of LTC benefits for only $2,242 per year. In other words, the Life/LTC policy costs TWICE as much as a stand-alone LTCi policy. What's worse, if one or both spouses goes on claim and uses the Life/LTC combo policy, the $125,000 death benefit will be reduced for each dollar paid in claims. In other words, they would have paid all that extra premium for nothing. Most (not all, but most) Life/LTC combo policies have 4 major deficiencies compared to a traditional LTCi policy: 1) they have stricter benefit triggers than an LTCi policy that meets the federal guidelines. 2) they do NOT have any type of inflation protection. 3) they do NOT qualify for asset protection under the Government-approved Long Term Care Partnership Programs that are available in 44 states. 4) the premiums are not tax deductible. A long-term care policy that meets the federal guidelines: 1) has tax-deductible premiums (and tax-free benefits) 2) can protect your assets even after the policy runs out of benefits (if you live in one of the 44 states that has a Long Term Care Partnership Program) 3) has inflation protection (which is required by the LTC Partnership Programs) 4) meets the federal standards for qualifying for benefits. In my experience, when given an educated choice, 9 out of 10 couples pick the stand-alone policy.