2002 Long-Term Care Insurance Market Trends
I was asked to give a speech this year on long-term care insurance market trends. To really prepare myself, I decided to survey my 6,000+ e-mail database. I wanted to know the benefit and premium characteristics of what was being sold, and I wanted to know attitudes conveyed by consumers and agents. The respondents to my survey averaged two apps per week, with 62% selling at least one per week, so my survey attracted “serious” LTCI agents.
For reasonability, I matched the benefit and premium characteristics against HIAA’s “Who Buys Long-Term Care Insurance in 2000?” The comparison made my results based on policies sold two years later reasonable with two major exceptions, inflation coverage and average age.
For example, my survey showed $130 average daily benefit, five-year average benefit period, average age 59.6 yrs, average premium $2,175, and 80% sold with compound inflation. The HIAA survey based on policies sold two years earlier showed $110 average daily benefit ($120 for $50,000+ incomes, five-year average benefit period, average age 66 years and average premium $1,741 ($1,860 for $50,000+ incomes), and 41% sold with inflation of any kind (compound, simple or future purchase offers).
My survey has an inherent bias, which partially explains the wide differences between average age and the number of policies sold with compound inflation. I train heavily on the importance of compound inflation and selling to younger people and because compound inflation can double the premium at younger ages, it is logical that the sales results in my 2002 survey reflect a higher average premium even with a younger average age. Also, the HIAA study doesn’t look at buyers or people surveyed from the general population younger than 55, so that would make the HIAA average age older.
I am convinced that for long-term care insurance to work, we MUST sell younger people. I was glad to see that 21% of respondents stated they are participating in worksite marketing as the HIAA surveys have told us for years that the average age there is 43. I believe that anyone over age 18 is not too young to think about long-term care insurance.
The manager of the studio my company used to make the employee education video for the Federal LTCI program has a 22-year-old son who is paralyzed from the shoulders down from an automobile accident January 20th of this year. Who is taking care of him? His mother, mainly. Would she be thrilled if he had long-term care insurance? I think so, as it would greatly increase the hours of sleep she gets in a 24-hour period. Or what about the couple we filmed in East Tennessee? At age 25, the husband was on his way home from his engineering job on a motorcycle and a dump truck pulled out in front of him. He sustained a head injury that caused his 23-year-old wife to lose her job and have to help him with all of his bodily functions over the next three years. Her synopsis of the situation still rings in my ears: “I guess you couldn’t have enough insurance for something like this.”
Then there’s the true cost of waiting that is often overlooked. If a 44-year-old were buying a $150 daily benefit, that person would probably be considering a $250 daily benefit at age 54, and at age 65, a $350 daily benefit. Those premiums multiplied to age 80 would make a clear case for buying younger. In other words, the younger you buy, the longer you pay, but the less you pay.
With 80% of their policies sold with compound inflation, the agents responding to my survey don’t subscribe to the theory “better to sell something than nothing”. Would any of us buy a health insurance policy today that only pays hospital room rates at what they cost today? Of course not! Selling LTCI without inflation coverage amounts to the same thing. Even selling a 75-year-old a policy with no inflation doesn’t make sense. That person can easily live another 10 years, when costs will grow from $143 today for semi-private nursing home room and board to $237 per day at the CMS projected growth rate of 5.8% annually. If the person can’t make up the difference at claim time between the policy benefit and the actual charge, he or she can wind up on Medicaid immediately and that’s not why the policy was purchased.
I believe it’s better to sell the appropriate daily (or monthly) benefit and inflation coverage with a shorter benefit period if that’s necessary for affordability, than to sell longer benefit periods with inadequate inflation coverage. Several new products today are being introduced with lower inflation factors – both simple and compound – and I fear consumers will buy them with false confidence. I don’t think the 5% compound will keep up over the long term, and frequently recommend to younger purchasers to buy an extra $10 or $20 daily benefit to compensate for the shortfall.
Finally, I looked at attitudes. The top three most important benefits expressed by the agents were lifetime benefit period, 100% home health care and compound inflation – interesting when the product development trend right now is a growing number of “bells and whistles”. The top three objections reported by the agents are cost, denial and “want to wait”. I hope this article has addressed all three. The #1 need expressed that would help the LTCI market grow was split between better tax incentives and greater consumer awareness, and I agree wholeheartedly. If these things were in place, the biggest challenge they expressed - getting the appointment - would be annihilated.
Phyllis Shelton is President of LTC Consultants, a Nashville based firm that specializes in on-line and live agent training and sales and marketing materials for long-term care insurance. She can be reached through her website at www.ltcconsultants.com.
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