Friday, November 15, 2013

We Have an Obligation?

November is Long Term Care Awareness Month. Many people don't understand what it is, what it does or why they would need it. As an adviser, you should be using this month as your opportunity to start educating your clients and prospects about the importance of including this vital coverage in their financial plan.

  • 70% of people over the age of 65 will need some type of long term care at some point in their lives.1
  • 85% of people don't have a plan for covering long term care costs that are likely to be in their future. 2
  • The projected average cost for 3 years of long term care 30 years from now is $750,000. 3

Big players in the LTC insurance market are currently requesting significant premium increases on some blocks of their in-force business. John Hancock is requesting an average increase of 25% on half of its in-force business while Genworth Financial is seeking up to a 13% increase on in-force business purchased in 2003 and 2012. Many of the LTC policies issued in the last 20 years were incorrectly priced and are still in-force. Now these blocks are older and applying for benefits. The problem is that carriers didn't anticipate that people would actually keep their policies. Current low interest rates aren't helping either because carriers use their return on bond portfolios to help pay claims.

When a rate action increase happens, policy holders generally don't drop their coverage. If they can't return to the market for a new policy, they either pay the extra cost or they cut benefits, like inflation protection, to keep the premiums down. The attitude is that some benefit is better than no benefit at all.

LTC benefit riders are gaining in popularity. These hybrid life insurance products that contain benefits for long term care can be an affordable way for individuals to "kill two birds with one stone" and still get the coverage they need. Help with long term care costs if the insured gets sick and lives a long life, and a death benefit paid to the designated beneficiary when the insured dies.

It's never too late to get the conversation started and every financial plan should include a long term care analysis. Whether it's a stand alone long term care policy or a hybrid life insurance plan, you have an obligation to your clients to broach the subject.

Long Term Care Awareness Resources
Maximizing the LTC Insurance Market

1. U.S. Department of Health and Human Services, National Clearinghouse for Long-Term Care Information,, September 2008.
2. John Hancock’s online survey conducted September 2011 by Mathew Greenwald & Associates, Inc.
3. Based on John Hancock’s Cost of Care Survey, conducted by LifePlans, Inc., 2011 and an assumed rate of inflation of 4.1% based on the average annual increase in the Consumer Price Index for All-Urban Consumers (CPI-U), obtained from the Bureau of Labor Statistics of the U.S. Department of Labor, for the 50-year period ending 12/31/10.1