INSURANCE
There are several reasons for the popularity of hybrid plans , he says . First , they guarantee a payout , whether it ’ s as a longterm-care benefit or life insurance or annuity distribution . This means policyholders know they will get something out of it . They are not funding a policy they might never use .
Another important advantage of the hybrids is that their underwriting standards are less stringent . The health requirements are somewhat looser , so it ’ s easier to qualify , says Gordon , which is especially important for people who have delayed buying coverage .
“ Many [ clients ] have waited too long to have the conversation , and they can no longer qualify [ for a traditional policy ] from an underwriting or financial standpoint ,” he says . “ LTC insurance is not like a fine wine . The longer wait does not pay off .”
Hybrid plans are typically more expensive than traditional stand-alone policies . But their premiums are guaranteed not to increase , Gordon says .
Strains On The System
Long-term-care policies first became widely available in the 1970s , when the cost of care was a lot lower . Advisors say the industry misjudged virtually everything about the way expenses would evolve — the size of price increases for medical equipment , the need for at-home assistance with daily-living tasks , the growing need for nursing-home care , and other expenses related to the infirmities of old age . The industry also underestimated how many policyholders would actually keep their coverage and use their benefits , not to mention how long they would live .
The strains on the system have been reflected in the premium increases , the more limited coverage and the more rigorous requirements for those considered insurable , advisors say . Over the past few decades , carrier after carrier has quit the industry as its obligations have become financially insupportable . Long-term-care policies even played a role in the financial decline of Genworth ’ s former parent , giant General Electric , which was once the gold standard of blue-chip companies .
Ordinary health insurance and Medicare have not filled the gap . At best , they provide only temporary rehabilitation assistance after policyholders suffer a severe injury or illness , but not ongoing
Only 3 % to 4 % of Americans age 50 or older have purchased a long-term-care policy , according to insurance-industry data tracker Limra .
assistance with daily-living needs . Neither supports extended custodial aid . ( Medicaid might , but you have to be impoverished to qualify for it .) So unless you ’ re wealthy enough to self-insure , experts say , private long-term-care coverage is the only way to offset the financial setbacks of long-term debility .
“ LTC is an area where many Americans are retaining a significant risk ,” says Shane Johnson , a senior partner at the Perspective Financial Group , an Alera Group company , in Berwyn , Pa . “[ They ] are underinsured against it and , in a majority of cases , lack sufficient assets to self-insure . There needs to be more education around the topic .”
The industry has a reputation problem too , he says . The widespread reports of steep premium increases have frightened many potential customers .
Indeed , only 3 % to 4 % of Americans age 50 or older have purchased a longterm-care policy , according to insuranceindustry data tracker Limra .
A Still-Developing Industry
“ The LTC insurance industry is still young and continues to develop ,” Johnson says .
Where that development will lead is anyone ’ s guess . “ The industry needs to move to products that middle-income families can afford ,” says Tom Beauregard , founder and CEO of HCG Secure in Goshen , Conn ., which sells long-termcare insurance with a particular focus on aging at home , not in an institution . “ This means lower coverage levels that will cover the average care need , [ with less emphasis on ] the traditional and richer plans that are in place as asset protection models for wealthier families .”
The need for innovation in the industry is “ huge and growing ,” he says . Too many families need “ better access to stable products that will cover the average risk period , which is approximately three years ,” he says .
Government statistics would seem to agree . A 2019 study by the U . S . Department of Health and Human Services found that 70 % of adults who survive to age 65 will have a great need for longterm care .
One hopeful development has been the introduction of group plans offered by employers , says Todd Wolfe , senior insurance associate at Telemus Capital in Southfield , Mich . These plans , he says , use collective bargaining power to get more favorable terms and premiums than individual policies might provide .
And that might be the silver lining of the Genworth settlement .
“ The Genworth case reflects the struggles within the LTC insurance industry , leading to more rules , greater awareness among buyers , and a push for new , more sustainable insurance products ,” Wolfe says . “ It ’ s making companies rethink how they offer and price these policies , aiming for a balance that keeps them in business while still being fair to customers .”
54 | FINANCIAL ADVISOR MAGAZINE | JUNE 2024 WWW . FA-MAG . COM