By Bernard A. Krooks, Certified Elder Law Attorney
A few weeks ago, one of the leading American companies that sells long-term care insurance suspended sales of its most popular product. Then, a week or so later, the company restarted sales — but only by direct online contact. In other words, brokers and insurance salespeople are now not able to sell this product for the largest seller. What does that mean for the marketplace, and for consumers?
The company that we are referring to is named Genworth Financial. What they did initially was suspend all sales of traditional, individual policies of long-term care insurance (LTCI). A move like this is big news in the industry, since Genworth has the largest number of LTCI policyholders of any insurance company. In the past year, Genworth had raised its premiums by 53%, and had set aside an additional $327 million to cover unanticipated costs paid out on its policies. This was due to increased capital requirements imposed by regulators, the current and long-standing low interest rate environment and the increased longevity of Americans. By living longer, it is more likely that a person will became incapacitated and require long-term care, which in turn means that there will be more claims. Also, when someone buys LTCI, they typically pay premiums for many years prior to filing a claim, if ever. During this time period, the insurance company invests the premium dollars in a diversified bond portfolio. With interest rates at historically low rates, the return on investment for the insurance companies was much lower than anticipated thus resulting in the need to raise premium rates.
What does this mean going forward for the LTCI industry and consumers? For starters, the number of companies who sell LTCI has been decreasing and will continue to do so since the companies are finding it difficult to make a profit on this product and not that many consumers have purchased the product due to how expensive it can be. Moreover, the industry is moving away from traditional, LTCI policies, and towards “hybrid” policies. Hybrid policies are actually life insurance policies or annuities with a long-term care component. Here’s how it works: Basically, the consumer purchases a life insurance policy — either with a single premium or a series of large payments. The policy will pay out to heirs at death, just like traditional life insurance. However, if the policyholder needs long-term care during his lifetime, the policy can be used up to certain amounts to pay for that care. There are similar hybrid policies available in the annuity industry. Although the annuity type policies are less popular than the life insurance hybrids, they have also increased in sales in recent years.
These hybrid policies have been very popular in recent years. Even as traditional LTCI policy sales declined, hybrid policy sales surged. A 2017 Forbes article, for instance, reported that hybrid policies were about twice as popular as traditional LTCI in that year. Regardless of growth in the hybrid LTCI marketplace, total sales of policies continue to decline. Is there a future for LTCI at all? No one is certain. One thing does seem clear: the cost of long-term care and the cost to insure against it will continue to rise.
So, should you buy LTCI and if so, when? Well, that depends upon a number of factors, including your aversion to risk, the possible dependency of family members, among others. One big factor is whether you have the ability to self-insure.
In other words, do you have enough assets to pay for this potential cost, if necessary. In the New York metropolitan area, that could mean $200,000 or more a year. And if you are married, those numbers could apply to your spouse as well. Could you afford this amount of money if one of you had a chronic illness such as Alzheimer’s disease and needed nursing home care for 8-10 years or longer?
Also to be considered is your age. If you are under 60, the cost may not be prohibitive; however, the older you get the more expensive LTCI gets; furthermore, you may not even be insurable later in life for health reasons. That is one of the primary reasons for considering LTCI at an early age.
Bottom line: if you have an LTCI policy, it probably makes sense to keep it. Monitor premiums carefully though as many insurance companies continue to raise their prices. If you don’t have LTCI, you should certainly start the conversation among your family and advisors as to how you would pay for long-term care if the need arises.
Bernard A. Krooks, Esq., is a founding partner of Littman Krooks LLP and has been honored as one of the “Best Lawyers” in America for each of the last seven years. He is past President of the National Academy of Elder Law Attorneys (NAELA) and past President of the New York Chapter of NAELA. Mr. Krooks has also served as chair of the Elder Law Section of the New York State Bar Association. He has been selected as a “New York Super Lawyer” since 2006. Mr. Krooks may be reached at (914-684-2100) or by visiting the firm’s website at www.elderlawnewyork.com.