Innovative long term care insurance products are on the horizon as the industry seeks to appeal to more clients.
Market participants realize that offering hybrid products and new forms of coverage would help expand the market to people who don't normally purchase LTC insurance. Also, insurers would like to make the product easier to understand for consumers, hoping that simplicity encourages clients to buy insurance.
Cost and complexity are major barriers to consumers' purchasing LTC insurance, according to data from LIMRA International Inc. of Windsor, Conn.
Enter the hybrid LTC product, which attempts to handle income and insurance needs with one solution.
"A lot of the people buying the hybrids are self-insurers," said Beth M. Ludden, senior vice president of product development for LTC insurance at Genworth Financial Inc. of Richmond, Va. Such products combine an annuity or a life insurance policy with a LTC rider.
HYBRID PRODUCTS
For example, with Radnor, Pa.-based Lincoln National Corp.'s MoneyGuard Reserve, clients can purchase a universal-life-insurance policy and an accelerated death benefit rider to pay for LTC needs.
Last week, Ms. Ludden participated in the "Innovations in Long-Term-Care Insurance" panel at LIMRA International's annual conference in Hollywood, Fla.
"These products are traditionally popular in the wirehouse bank channel, and you're seeing more adviser interest in that product," said Tom Riekse, president of LTCI Partners LLC in Madison, Wis.
Conservative investors and affluent clients have been most attracted to the hybrid offering because they can readily access the money that they put into the product. They also have more flexibility in electing the LTC rider, and they can get their money back if they don't want the coverage.
Financial advisers have also been looking at annuities that have similar LTC riders, and they can do 1035 exchanges from one annuity to another that offers LTC provisions, Mr. Riekse said. The Pension Protection Act of 2006 permits them to use withdrawals from life insurance or annuity contracts to pay for LTC needs without being subject to income taxes.
The act continues to fuel developments in hybrid products, said John M. Connelly, an LTC specialist and national spokesman for Lincoln's MoneyGuard Reserve, who was also a panelist at the conference.
Among the other product innovations is an indexed inflation feature, which raises the benefits if the consumer price index — a key inflation measure — rises, and keeps the benefits level if the index falls.
Medical costs are rising at a higher rate than core inflation — or the CPI without food and fuel costs — but the index works as a good measure for LTC benefits because most services fall under custodial care rather than medical or skilled services, Ms. Ludden said.
Another strategy is to purchase a pool of LTC dollars. In such a plan, consumers buy a five-year benefit period, plus an additional dollar amount.
In the event that the consumer goes through the covered benefit, he can tap the dollar pool to restore benefits. However, this option would cost more than a traditional policy, Ms. Ludden warned.
Striving for simplicity in consumers' understanding of their benefits, some carriers have started measuring their benefit periods in dollar amounts rather than in years, Mr. Riekse said.
"Nobody wants to think about years spent in a nursing home as terms of increments of protection," he said. "We're seeing with more carriers, you're looking at a pool of money; you get a three- or four-year plan, but you see it as $400,000 of protection."
For an additional cost, some insurers will also measure the benefit period in terms of calendar days as opposed to hours of care.
However, despite the revamped LTC products, the industry still foresees plenty of difficulty in getting the benefits out to people who need them.
"We still need to do a better job to explain why these are good consumer-oriented features," Ms. Ludden said.
E-mail Darla Mercado at [email protected].
