Baby boomers are planning for end of life, transforming a relatively new insurance option that combines long-term care and life insurance into a $4 billion industry.
The so-called life-combination market has grown sharply over the past 10 years, as people look for ways to provide for the health assistance they may need as they age, with a death benefit if they never take advantage of it.
Research conducted by LIMRA, an insurance and financial services research firm, indicates that 30 companies offer the combination product, more than double those involved a decade ago.
Despite the growth, challenges remain, LIMRA found, releasing a recent report on combination products. Among five areas it investigated, LIMRA found consumers are often skeptical due to the rate increases in long-term care insurance, and the relatively new introduction of combination products.
But the rising expense of nursing home and home-health care, combined with an aging population, is creating demand for more options.
The U.S. Department of Health and Human Services estimates that half of the people 65 and older may need some form of long-term care within their lifetime, according to LIMRA. The average annual cost for nursing home care in the U.S. is now approaching $100,000, it reported.
‘It’s … in the same category as getting people to go do their wills.’
GERALDINE B. CUNNINGHAM, First Financial Advisory Services Inc. president and CEO
David Raymon, an estate and trust attorney with Boston-based Burns & Levinson LLP, said many of his clients are concerned about planning for their long-term health care needs.
“Long-term care is a huge concern for people,” he said. “We’re living longer. Health care is very expensive. Nursing home care is very expensive. And the prospect of your nest egg, [which] you want to see transferred to your kids, being used up entirely with nursing home costs is scary for people.”
Geraldine B. Cunningham, president and CEO of First Financial Advisory Services Inc. in Westerly, said her business sees many individuals, of all net-worth ranges, who are coming to terms with their numbers.
“You’ve got people realizing … ‘Our life expectancy has really grown. Our kids have moved all over the country. They’re not going to be here,’ ” she said.
Policies differ based on which insurance company is writing it, but essentially they all provide some level of long-term care coverage and a death benefit if the person doesn’t take advantage of that health care feature.
The premiums are generally paid over a 10-year span, while the person is working. And because it’s a life insurance policy, the rate is set and doesn’t increase, she said.
Cunningham said she paid for two policies for her own adult children. The payments stretch over 10 years and include an inflation clause, because in reality, many people won’t use them until they’re in their 80s, she said.
Her company represents people in all ranges of assets. But if she has someone whose assets – not including their house – are in the $300,000 range, she advises them to consider it.
“They wouldn’t lose the house,” Cunningham said. “But they might end up going through the whole retirement money that was supposed to be there.”
The industry still provides straight long-term care insurance options, but many people in their 50s and 60s are now looking at the hybrid options, she said.
“Because of the idea that this isn’t just money out the window,” Cunningham said. “Because it’s a life insurance policy, premiums are fixed.”
In terms of planning, she said, many people in their late 40s and 50s, who are in the ideal age bracket to purchase long-term care products, aren’t necessarily prepared financially or emotionally.
“It’s equally in the same category as getting people to go do their wills,” Cunningham said. “We think it’s a good thing, we just don’t have the time. It’s on our list of to-dos. I always ask, is it at the top or the bottom” of their lists.
When evaluating policies, people should consider the time value of money. Money put into an insurance policy could have been invested and earned more in interest than what the death benefit paid out could be. So, in that sense, the hybrid products are not designed to provide something for nothing.
Policies have coverage areas and may also have gaps, Raymon said.
“If you ever have to use it, what will it cover, what won’t it cover” are the key questions for policyholders, Raymon said.
For Raymon, the topic is one that comes up in the context of estate planning. He helps his clients evaluate what insurance agents are putting before them. The decision of which policy works for an individual is a complex one. Each policy is different.
“It takes the advice of a good insurance agent, as well as an estate planner,” he said.
Mary MacDonald is a staff writer for the PBN. Contact her at Macdonald@PBN.com.