Although Americans are living longer lives, they aren’t necessarily healthier in those later years. In fact, it’s more than likely many, your clients included, will require some hands-on care or assistance during the aging process. This, for many, will mean significant out of pocket expenses with serious financial implications. As advisors, it is important that we become knowledgeable about various solutions to this risk, even if long-term care planning is not necessarily a primary focus of our practice. As a holistic financial planner, I believe it’s simply our responsibility to help protect our clients from these risk factors.
The long-term care insurance landscape has experienced dramatic changes over the past few years. While many key industry players have departed from this market, others remain, offering new and different products with that can provide protection against this risk and address their unique needs. For example, some carriers offer hybrid products that combine a death benefit and long-term care benefits that ostensibly can hedge against both a risk of needing long-term benefits and life insurance if the client were to die without ever filing a long-term care claim. Although the marketing and plan design of long-term care insurance has had to adjust to both increased life expectancy and low interest rates, the marketplace for long-term care insurance continues to evolve amid a skeptical population of buyers. This makes it very important for advisors to be aware of developments in the long-term care market now more than ever before.
Market trends and shifts to watch
Substantial changes made over the past decade as baby boomers aged have shown concern and volatility in the long-term care industry. Over the last ten years, the number of carriers underwriting long-term care policies decreased from 50 to only 14 companies. With so few companies left to absorb the liability for American’s long-term care claims, the market has been forced to adapt. At the same time, there is a large-scale generation shift as baby boomers age and rely more heavily on care. As a result of this trend, premiums are on the rise and products themselves are evolving. This year, watch for carriers to enter or exit the long-term care space. Make sure clients are aware of companies entering the industry or adjusting their policy.
Product types and provisions to complement client needs
Recently, long-term care companies have had to adapt due to these changes. As a result, new products and mandatory provisions offer a more customized approach to product design, rather than a one-size fits all approach that some advisors rely upon.
Protective provision – traditional long-term care products
Some long-term care carriers still servicing policies have had to resort to significant premium rate increases due to sustained low interest rates and longevity. Too often, clients are left to choose between higher premiums they may not be able to afford or lapse the policy and forfeit coverage. Although no limits exist on the frequency of rate increases, legally-mandated non-forfeiture provisions can protect clients against current premium increases.
Due to federal regulation, most contracts contain language to protect the public with non-forfeiture provisions, which can be triggered if the premium increases by 20 percent or more. Once activated, clients effectively terminate policy premiums; they are no longer obligated to pay premiums, and still provide future claims at a reduced level.
Unfortunately, not many clients or family members are aware of this protection or don’t realize that they of their advocates must trigger this provision. Existing policyholders, lacking an advisor or active agent, should take care to verify rates and coverage and inform family members who will likely handle claims in the future.
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