Every year for the past 20, Broker World magazine has published a survey on long-term care insurance (LTCI). It’s a huge undertaking and provides valuable information for the industry and consumers alike primarily about the standalone insurance marketplace.
A few highlights:
- Two carriers, Mutual of Omaha and Northwestern, remained the top two LTCI carriers accounting for about half of new standalone policies sold in 2017.
- Individual standalone policies sold in 2017 were down 26% from 2016 sales. But hybrid policies, life insurance or annuities combined with long-term care options, more than made up for the decrease in standalone sales.
- The average age in 2017 for long-term care insurance applicants was 56.7.
- The average annual premium for new policyholders in 2017 was $2596.
- Distribution of claims paid by care venue equated to 31.2% for nursing home, 35.3% for assisted living and 32.6% for home care.
What are people buying today?
There are five components that most LTCI applicants look at when deciding about coverage.
Here we’ve defined those components along with what most applicants purchased in 2017.
- Benefit Amount: The daily or monthly amount the insurance company pays for covered services. The average benefit amount is $4700 per month.
- Benefit Period: The period of time the insurance coverage will pay for covered services. The average benefit period is 3.73 years.
- Facility Elimination Period: The period of time the policyholder is responsible for care expenses before insurance coverage begins. Most, 91.5%, selected an elimination period between 84 to 100 days.
- Inflation Protection: A policy optional rider that increases the benefit amount to keep pace with increases in care costs. When opting for inflation, 23.2% chose 3%. But 19.8% opted for no inflation.
- Premium: The average cost of a traditional policy per person. The average premium is $2596 annually. This depends on carrier, age and gender.
- Females account for 55.5% of policies sold. Single females account for 68.5% of single insureds.
- When couples apply together 50.8% select a shared rider.
Consumers are buying LTCI. Today, more than half of policies sold are of the hybrid design for two reasons:
- Rate stability.
- The “use it or lose it” objection to standalone products is largely eliminated.
These products are more expensive if policyholders need care. The net effect is that the market for LTCI has changed. Because the hybrid product design is more expensive and many carriers require a significant single premium to fund a meaningful long-term care monthly benefit, the market has sifted to a more affluent client.
Consider that only 59.0% of applications resulted in active policies in 2017. There are several contributing factors but one is the reluctance of financial advisors to encourage clients to apply for this insurance.
A shift back to standalone policies
The good news is that we are seeing a shift back to standalone products that more consumers can afford.
The Society of Actuaries published a report in October of 2016 that stated the policies in the market from 2014 and beyond have less than a 10% probability of a rate increase. And the increase most likely would be less than 10%. The expectation is that the rate increases experienced on the old legacy policies should be a thing of the past.
The important takeaways …
Be sure that you have a plan for long-term care. Visit our blog on Observations and Family Conversations to understand the three questions that will help you design a plan.
Then be sure to discuss your plan with family and others who will be instrumental in helping you implement your plan. And, importantly, take steps to put your funding strategy in place.