LTC Bullet:  LTCi Coverage:  What's the Right Size? 

Tuesday, May 10, 2005 

Santa Fe, NM-- 

LTC Comment:  Kudos to Jesse Slome and Milliman, Inc. for a new study of long-term care insurance that drew attention from the Wall Street Journal.  What's best?  Shorter and cheaper or longer and pricier?  Or does it all depend?  More after the ***news.*** 

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LTC Comment:  When major insurance industry trade journals are publishing stories titled "2004:  A Grim Year for LTC Insurance" (by editor Ron Panko in the April 2005 issue of Best's Review), you know the product is in trouble.   

The main reason people give for failing to buy insurance protection against long-term care risk is that it costs too much.  Well, what do you do if your budget is limited but you need a car?  You buy a Chevrolet instead of a Cadillac. 

That's the reasoning that led Jesse Slome, president of Sales Creators, Inc. and editor of LTCi Sales Strategies magazine, to team up with the actuarial firm Milliman, Inc. and ask:  "What do long-term care insurance claims data tell us about the need for and probability of using a private LTCi policy?"  In other words:  "Do you really need expensive lifetime coverage?" 

The resulting report is a hit.  Following below are excerpts from a Wall Street Journal story about the study and a short essay that takes a different point of view on the findings. 

Single copies of the report, titled "Long-Term Care Claims," are $50 with large discounts for volume purchases and for LTCi Sales Strategies subscribers.  For details, call 888-599-5997 or email .   

SPECIAL PRICE:  But, get this, Jesse Slome says you can have a copy for $20 if you mention the Center for Long-Term Care Reform, Inc. and ask for that rate! 


Excerpts from Glenn Ruffenach, "Guide to Long-Term Care," The Wall Street Journal, May 8, 2005,,,SB111550957815927575,00.html (requires subscription.) 

"A new study could help take some of the guesswork -- and expense -- out of buying long-term care insurance. . . . 

"The problem:  While unlimited benefits are nice, they're also expensive.  Premiums for lifetime coverage can run about one-third more than those for a three-year policy, for instance.  And high premiums are why many people balk in the first place at buying long-term care insurance. . . . 

"Given the amount of time that people actually spend in long-term care facilities, a three-year or four-year policy with a healthy daily benefit (at least $150) and the proper inflation protection might be adequate for many consumers.  Now a study by Milliman Inc., a consulting and actuarial firm . . ., provides some new support for that idea. 

"Milliman asked four carriers:  'What percentage of claimants actually use up the entire insurance policy benefits available to them?'  The results were encouraging.  For those with a three-year benefit period, only 8% -- eight in 100 claimants -- exhausted their policy.  For those with four- and five-year coverage, the results were even better:  Only 5.1% and 1.5%, respectively, used up all their benefits. 

"So...does this mean everyone should run out and buy a four- or five-year policy?  Absolutely not, says Dawn Helwig, a principal in Milliman's Chicago office and co-author of the study.  After all, she says, 'there is a chance you could be part of the unlucky 7% or 8%.' . . . 

"Jesse Slome, president of Sales Creators Inc., a publishing and marketing firm in Westlake Village, Calif., that commissioned and published the Milliman study, calls the process 'right-sizing.' . . . 

"'The key,' he says, 'is to right-size the protection you need for long-term care and integrate that with other assets.' 

"His other caveat:  Just because you have determined that a three-year policy, for instance, would fit your needs, that doesn't mean you can purchase such coverage whenever you choose.  With all individual policies (and some coverage purchased through an employer), you first have to qualify medically.  Mr. Slome cites a recent study in which 11% of applicants for long-term care insurance between the ages of 50 and 59 were refused coverage.  The figure rose to 19% for those age 60 to 69, and to 43% for those age 70 to 79. 

"The lesson:  If you're serious about buying long-term care insurance, buy it when you're younger -- and healthier."


Now for a different perspective regarding LTCi benefit periods.  The following essay is published with permission from the author. 

"What is the ideal Benefit Period?"
Henrik Larsen, MBA, CLTC

The benefit period is undoubtedly the single-most difficult component of a long-term care insurance policy with respect to how to advise our clients.  . . .  Some advisors tell clients that the average need for care is 3-4 years, and recently, Milliman - a national actuarial consultancy - conducted a survey of the duration of long-term care claims which found that only 14.4% of closed claims lasted more than 24 months.  The percentage was 33.2% for open claims. 

Unfortunately, this does not help us - or our clients - much.  My wife's two grandmothers both needed long-term care.  One died two years ago in an assisted living facility with private duty nurses after a six-plus year battle with Alzheimer's disease.  The other died four years ago, also in an assisted living facility, at the ripe old age of 97 - she had been there for less than a year.  The average between the two is three to four years, yet this average meant little to either of them. 

Whereas the average is a good yardstick for determining a suitable daily benefit, it is meaningless in advising on the proper benefit period.  What if a client purchases an LTCi policy with a 3-year benefit period but needs care for 11 years?  Though the scenario is unlikely, it could happen and in this event, the client might just as well not have purchased LTCi at all.  This is not to say that we as advisors should sell nothing but unlimited benefit periods, however.  In advising our clients we cannot rely solely on the average.  You have all been in situations where the clients' family experiences are drastically different from the average, and the very reason they are contemplating LTCi is that they had family members who needed care for a significantly longer period of time. 

In today's marketplace we are seeing some interesting trends.  The average age at time of application has dropped significantly but the average premium per application is up (in our agency by 50% over the last three years).  This is in some part due to the fact that premiums for LTCi have increased but it also shows that we are dealing with more affluent clients.  The primary reason for this higher premium per application is that longer benefit periods are being sold.   

Milliman's study proves little more than closed claims had a shorter duration due to the fact the insureds were relatively older when they purchased their policies and as such on average had shorter benefit periods.  Shorter benefit periods lead to insureds postponing filing claims out of fear for running out of benefits.  Open (current) claims have longer durations because these insureds were relatively younger when they purchased their coverage (with on-average longer benefit periods) and the fear of running out of benefits is not as prevalent. 

I strongly believe that the insured needs to be properly educated on the importance of the benefit period and not let it be left to relying on the average or claims data from insurance companies.  Shorter benefit periods can lead to postponement of claims because of the aforementioned hesitancy toward filing claims which could lead to unnecessary out-of-pocket expenses and family friction; the very factors we as well as the insured are trying to avoid. 

Henrik Larsen, MBA, CLTC is the Vice President of Marketing for Advanced Resources Marketing, Inc., Boston, MA, one of the nationís largest brokerage houses for long-term care insurance. 


LTC Comment:  The primary purpose of insurance is to replace the small risk of a catastrophic loss with the certainty of an affordable premium.  Clearly, those who can afford lifetime LTCi benefits should purchase them.  They'll receive the maximum insurance leverage, i.e. the biggest differential between premium spent and protection purchased.  

On the other hand, anyone who cannot afford lifetime coverage is well-advised to purchase whatever coverage they can afford.  Even a one-year policy provides "key money" that helps open the door to the best, mostly private-pay long-term care facilities.  Without the ability to pay privately at least for awhile, people dependent on public financing, especially Medicaid, may have trouble gaining access to the best nursing homes, and usually, they'll be excluded from assisted living or home care. 



Regrettably most people are missing the significance of the Claims study.  You can't sell something, as you [LTC Bullets] have so well stated, when others give it away free.  You also can't sell something when consumers perceive it as too expensive.  And, that's one of the major roadblocks to expanding the market for long-term care insurance.  

Many of today's successful and savvy LTCi specialists (such as Henrik) and financial planners have carved out niches selling to affluent prospects who can and are willing to purchase lifetime or unlimited benefits.  That's outstanding.  They have protected their clients . . . and the industry has achieved a six-to-ten percent market penetration (depending on who you talk to). 

But what about those looking to expand the market, and sales?  What if you could show consumers a way to get what they desire (protection) but pay significantly less (say 40% less)?  Would that be a good selling proposition?  Yes indeed! 

But, that begs the question, when it comes to long-term care insurance, "is something really better than nothing?"  Would the industry be doing a disservice to people who purchased limited protection?  As the study shows, a shorter-term policy clearly is adequate protection for the vast majority of people who actually go on claim.  And, at the 2005 National LTCi Producers Summit, the Milliman experts will look at the number of policyholders who will actually go on claim.  It's not the one out of two statistic that gets used so often!  [Stay tuned to LTC Bullets for information on Jesse's forthcoming 2005 National LTCi Producers Summit conference in Kansas City.] 

Indeed, by his own account, both of Henrik's grandmothers would have been well served by a shorter-duration policy.  Combined with support from family members, other sources of income and savings, a less-than-lifetime policy would likely have been adequate for both grandmothers and served the family well.   

Of course, there will be situations where a claim will last longer (as the study shows).  And, that's just the reason the nation needs a national Partnership program (where government support pitches in after LTC insurance has paid benefits; much the same way that FEMA helps out flood victims). 

The questions for [LTCi sales] producers to ask themselves is "do I want to see my sales grow?" and "do I want to protect more people?"  If the answer is "yes" then they will have to reorient themselves away from all the horror stories of grandma needing 20 years of care and take a look at the more real situations and the current data.  If a client wants lifetime and can afford it, it's a most appropriate sale.   

But, not everybody can afford to or chooses to drive a Mercedes.  And, Honda and Toyota sell quite a few cars as a result. 

Jesse Slome, President, Sales Creators, Inc.
Phone: 818-597-3205    Email: