A student of economics would likely believe that with the aging American population, long-term care insurance packages should be flying off the shelf based on the principle of supply and demand.
But according to the National Bureau of Economic Research, only 10 percent of the elderly have private long-term care insurance. Why?
Clearly, the supply side is taken care of.
Insurance companies are more than willing to let people purchase their policies.
Because the marketplace isn’t responding, many companies have set out to determine why this is the case.
For starters, they know that the current messaging of the product is not working. And they can assume that the current long-term insurance products themselves aren’t hitting the target of what consumers want.
So I did a little research and talked with my own clients to explore the demand side of the equation. Here’s what I discovered:
It turns out that many people just don’t think that they will need long-term care insurance. In an August 2012 Morningstar article, 40 Must-Know Statistics About Long-Term Care, reporter Christine Benz explains that a person age 65 has a 68 percent chance of developing a cognitive impairment, will be unable to complete two of the six activities of daily living (eating, bathing, toileting, transference [walking], dressing, and continence), and has a 40 percent chance of entering a nursing home.
Maybe they don’t fully understand the consequences. For a couple, there is a 91 percent probability that one of them will need some form of long-term care services and a 64 percent chance that one of them will enter a nursing home. I remember the actor and singer Meat Loaf once crooned “Two Out of Three Ain’t Bad,” but I must respectfully disagree. The harsh reality is that there exists a two in three chance of at least one member of a couple going to a nursing home. Based on these statistics, you might think that demand for insurance to cover this risk would be strong, but you would be wrong.
After talking with my own clients, I learned that many of them are concerned that they won’t ever need to use their long-term care insurance policies.
Additionally, many consumers are concerned with premium rates they feel are already high. They worry that those premiums have increased in the past and wonder whether those increases might continue.
And some feel going without long-term care insurance is a risk they are willing to take due to the perceived cost-to-benefit analysis. Based on these concerns, as well as our natural inclination to think that bad things happen only to “other people,” it becomes easy to do nothing.
Now that the industry better understands consumer reluctance to purchase long-term care insurance, what is its answer? A host of new options designed to match the needs of people in many different types of situations:
1. Insurance companies are changing the narrow focus and messaging of their policies from strictly long-term care expense protection to policies that can address the multitude of risks we experience as we age — including death, long-term care, death of a spouse, etc.
2. Currently, some policies now offered take into account the possibility that you may not use your long-term care policy — and if not, will pay a benefit to your beneficiaries upon your death.
3. Some policies account for the possibility that your spouse may predecease you. If this is the case and you are no longer concerned with preserving your assets, these types of policies will allow you to receive back all of the premiums you previously paid.
4. Many policies guarantee premiums, and you can fund them with a single large investment, or pay regular premiums for up to 10 years. The amount of premium placed into these policies drives the benefits you receive.
5. Don’t forget to consider the annuities available that provide long-term care benefits as an addition or rider to your long-term care policy. While this rider will reduce your return, it is better than having no coverage. But let’s be clear: Though this new policy is appealing on multiple fronts, traditional long-term care insurance policies offer greater long-term care coverage.
If you used any of the reasons stated above to rationalize not purchasing your own long-term care policy, perhaps one of these new types of policies is exactly what you’re looking for.
Still, Questions Remain
Will these new policies resonate with consumers? Will the insurance companies be successful in helping to address the broad challenges being created by an aging population?
At this point, your guess is as good as mine. What I am certain about, though, is that the problems these policies are designed to address won’t fix themselves. That’s up to individuals to decide — for themselves and their families.