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Long-Term Care Insurance: What Life Insurance Producers Need to Know

Back in the day – 20 years ago, that is  – the mainstream life insurance producer knew little about traditional long-term care insurance.

If you were selling it back then, you were a pioneer of sorts.

If you weren’t selling it, you just hadn’t explored the great Wild West yet. Some still never have.

Today, as long-term care insurance products have evolved and there is a wider spectrum of solutions available to your clients, it’s not all Land of Opportunity and a guaranteed gold rush. 

Learn how long-term care insurance has developed and how to help your clients take advantage of the product innovation.

What Changed With LTCI

During the olden days of LTCI, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) was passed and it provided specific definitions for what constituted a "qualified" long-term care insurance policy.

Perhaps the most meaningful aspect of that new legislation – as it related to long-term care insurance – was tax breaks, including possible tax deductions of certain long-term care insurance premiums.

This spurred on the interest of life insurance producers who had previously not cared much about and shied away from long-term care insurance because of its perceived complexities and the specialization required to effectively present and sell it.

In other words, if it wasn't someone's specialty, they didn't want to learn about it.

However, a number of long-term care insurance sales were subsequently made because of this new law, although the industry never really had the significant growth it had expected or should have had.

Long-term care insurance sales were mostly "steady as she goes" for many years.

The good news is that there were a lot of insurance companies interested in offering long-term care insurance and many who did offer competitive products – at the time.

The Problem

But over the years, the industry contracted and a number of carriers exited the market  – primarily because of:

  • Assumptions that did not hold true.

  • Low interest rates.

  • A lack of profitability.

But the tide would soon turn.

Product Innovation

Fortunately, product innovation meant newer products garnered the interest of agents who didn't normally look to traditional long-term care insurance to try to address their prospects’ long-term care risks.

And in many cases, it was the client asking the agent if they handled long-term care insurance.

As many carriers started restricting benefits and features on their new traditional long-term care insurance product offerings, including discontinuing limited payment options, hybrid products became more popular.

This was in part because of their unique ability to meet a client's goals by limiting premiums and, in some cases, paying just a single premium.

Many of the hybrid products were designed for the purpose of transferring assets from liquid instruments  – such as money markets, CDs or savings account – into a hybrid long-term care insurance product that provided an exit strategy in case the client changed their mind.

It also provided a modest amount of life insurance and a meaningful amount of long-term care insurance benefits, if needed.

Many of those hybrid products were marketed as a "live, die, quit" strategy because they gave the client significant flexible options and thus created significant interest.

Enter: Riders

While the traditional long-term care insurance market contracted and the hybrid market grew, certain life insurance companies started to think outside the box and started offering long-term care insurance riders on their life products.

Similar to the hybrid product design, life products with a long-term care insurance rider meant that regardless of whether the client lived and needed long-term care or they died, the product would provide benefits for either event.

Life products with riders are underwritten for both life insurance and long-term care, but the additional premium needed to add a long-term care insurance rider is somewhat modest and therefore meaningful to a lot of prospects who are interested in purchasing permanent life insurance.

Today’s Landscape: The Good and the Bad

The development of long-term care insurance products and the wider spectrum of solutions available to agents to address their prospect's long-term care exposure is a double-edge sword.

The Good: On one hand, there are more products now than in years past, so consumers have lots of choice.

The Bad: However, the agent is faced with trying to figure out what solution might fit best based on their client's profile and suitability. It's more difficult to navigate all of these differences for the average insurance agent who doesn't focus on long-term care planning. It can be a daunting challenge!

 That's why we created the LWT Solution Center for traditional and hybrid long-term care insurance products.

The Solution Center offers agents expertise, advice and support to better understand how these products work and the differences between insurance carrier products. You can contact the LWT Solution Center by calling 800-998-3382.

And if you're interested in adding a long-term care insurance rider on a life insurance product, LWT's life insurance department offers a number of solutions and can guide you through those options.

They can be reached at 800-272-2212.

Originally published on 3/19; Updated 2/21
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