The Forest or the Trees?

Do any of these anecdotes sound familiar?:

  • I heard standalone Long-Term Care Insurance (LTCI) is going away
  • All the carriers are getting out of the LTCI business
  • I’m scared about LTCI rate increases & I hear they will continue
  • LTCI is tough to get issued
  • I don’t like buying insurance I may never use (e.g. LTCI)

The reality is that each of those may be genuine concerns and may be holding us back from putting much-needed coverage in place to protect our clients and their loved ones.

Here are some things to keep in mind about those concerns, and how we might actually use them to have productive planning conversations:

  • The first, and main, point to remember is this: regardless of the changes in LTC protection products, or carriers, or pricing, or underwriting, one thing is abundantly clear – the one thing that is NOT changing, and will NOT change any time soon (in fact, most would argue it will become more important, not less)…is the NEED! We need protection against the consequences of an extended or chronic care event, and the solutions in the insurance market today – while they have changed quite a bit in recent years – are actually more plentiful and flexible than they have ever been. We just need to find the right fit.
  • LTCI is going away and Carriers are exiting the business? – while it is true that a number of carriers have exited the standalone LTCI market in recent years, there are two points to consider here:
    • First, there is still a very viable standalone LTCI market – in fact, as of the writing of this article, there are still about 10-12 carriers (fewer in some states, like NY) underwriting LTCI, and many of those remaining have recently reiterated their commitment to the market.
    • Second, we heard similar cries back in the early to mid-1990’s, when the individual Disability Income (DI or Income Replacement) insurance market contracted because of a number of market forces. The result? A very viable individual DI market today, albeit with a smaller number of carriers underwriting new business. Why? Similar to LTCI, the NEED did not go away.
  • We’re scared of rate increases – this is certainly understandable, as we want to make sure we can sustain premiums for insurance – and other expenses – as we move into retirement. That said, while the recent phenomenon of rate increases has been, at times, more frequent and to a greater extent that almost anyone anticipated, one might reasonably argue that the economic and market forces that led to those increases (the biggest ones being the prolonged, unprecedented low interest rate environment and unanticipated high percentage of people keeping their policies over the long term – resulting in much lower carrier revenues and much higher claims than expected) are now “baked into the [pricing] cake,” thus mitigating future rate increases, at least to an extent. Think of it this way: the bad news is premiums for LTCI are, on average, 3-4 times higher than they were, say, 10 years ago. The GOOD news is that premiums for LTCI are, on average, 3-4 times higher than they were 10 years ago (and thus, arguably, more correctly priced now and more insulated from future rate increases).
  • LTCI is tough to get issued – similar to the DI market evolution, the more claims experience we have as an industry, the more we understand about underwriting, and any necessary changes. The truth is that we, as an industry, allowed people in LTCI’s early years to secure LTCI who probably should not have (thus a big part of why we have seen higher than expected claims). We are paying the price for that now, and the result is that, among other things, it is more vital than ever that we as an industry (a) reach out younger prospects than we have been accustomed to in the past (many feel the ideal time to have the care planning conversation is between the ages of 40 and 55) and (b) provide as much information about an applicant’s health and seeking opinion from qualified underwriting personnel (many brokerages, like ours at AIB, have qualified underwriters on staff to consult with on cases) BEFORE submitting those applications.
  • We don’t want to buy insurance we may not use – there are two very important points to consider here:
    • First, the statistical likelihood of a LTCI policyholder making a claim is MUCH higher than virtually any of type of insurance. Do we not buy homeowner’s insurance (or drop it after we pay our house off), or auto insurance (or just keep the state mandated minimum coverage), or liability insurance, simply because of the much lower probability they will ever use it? Why, then, do we view LTCI differently?
    • Secondarily, if we find ourselves emotionally unable to move forward because we “may never use it,” it is important for us to keep in mind that many of the newer insurance solutions available today can ensure that, regardless of whether we need LTC/Chronic/Extended care services, money will come back to us, or our estates.

Theodore Roosevelt once said, “In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.”

Ultimately, the worst thing we can do is to do nothing to protect ourselves and our loved ones from the potentially devastating impact of an extended care event, until it is too late.

So, remember to take action NOW – consider, for example, consulting with our staff for the various planning options about your extended care planning and DON’T “Lose the LTC Forest for the LTCI Trees!

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