LTC Bullet: Dual Purpose Life Insurance

Wednesday, April 22, 2009

Needles, California--

LTC Comment: A highly experienced and well-regarded New York LTC provider proposes a long-term care financing alternative after the ***news.***

*** READ KEN DYCHTWALD on "The 'Boom' Times that Are Waiting on the Other Side of Today's Recession." Ken Dychtwald, Ph.D. is a psychologist, gerontologist and author of sixteen books on aging, life transitions, and retirement-related issues including Age Wave, The Power Years, and his new book, With Purpose: Going from Success to Significance in Work and Life (with Daniel J. Kadlec, Collins Life; 3/09). The founding CEO of Age Wave, he lives with his wife and children in the San Francisco Bay Area. ***

*** WESTERN TOUR UPDATE. I'm in over 5,000 miles, many events and meetings since leaving Seattle on March 16. Today the Silver Bullet and I are stationary in Needles, California at a marina beside the Colorado River. Time to catch up on reading and outreach. Tomorrow we're headed toward Arizona. Speaking engagements are available between here and Albuquerque, New Mexico between now and April 29. Contact me directly at or 425-891-3640 to make spur-of-the-moment plans. Otherwise, schedule me to speak anywhere along this itinerary: Santa Fe, NM (May 9 to 16), Colorado (May 18 to 20) and Missoula, Montana on May 28. If it's physically possible to get me and the Silver Bullet to you in that range, we'll make it happen! ***

*** FLORIDA EVENTS. Steve Moses will speak in Miami on May 1. Details here. Special thanks to Miami Regional Representative George Braddock for organizing this event.

Steve will also present in Orlando on May 6 and Tampa on May 7. Details here. Special thanks to Gold Sponsor State Life/OneAmerica, VP Bruce Moon, and local organizer Elaine Marvin, who will also be presenting, for organizing these events. ***



LTC Comment: Morris Tenenbaum is always thinking about ways to improve long-term care service delivery and financing. He's followed the Center for Long-Term Care Reform's publications for years. He's provided constructive feedback and financial support to advance our common cause. Today we bring you excerpts from the latest iteration of Mr. Tenenbaum's "Dual Purpose Life Insurance" proposal which he has been fine-tuning for a good while.

The author's contact information is included. He's asked for our readers' feedback. Feel free to email him directly, but do copy as I'm interested in your opinions as well. The following omits large sections of Mr. Tenenbaum's complete paper to conserve space. To obtain the full document, simply email the author at


Excerpts from: "Dual Purpose Life Insurance: A radical new approach to increase consumer responsibility for long term care financing freeing up resources for health care reform"

By: Morris Tenenbaum, CNHA, FACHCA

2000 East Gun Hill Rd.
Bronx, N.Y. 10469
(718) 320-0400
FAX (718) 320-0557


For more than four decades as a Long Term Care (LTC) Senior Executive, now the CEO of a 720-bed multicare nursing center, as an active member of New York State Health Facilities Association as well as the Southern New York Association, I have studied, researched and evaluated the very obvious need for reform of this country's approach to financing the ever-increasing cost of long-term care. This paper proposes a logical, cost-effective and manageable way to restructure long term care funding (LTC): the conversion of life insurance policies to "end-of-life" contracts. Savings resulting from the proposed approach could be diverted for such urgent priorities as New York State's Child Health Plus Program and Healthy New York. They could also help fund health care reform initiatives and offset costs of providing heath care for the uninsured. This conversion will enable each person to utilize his/her life insurance policy's death benefit to pay for long term care, to the benefit of all parties and at no fundamental loss to all parties affected. The proposed conversion entails a basic and understandable use of funds that damages no financial concerns - not the individual, not the insurance company, not the health care provider, and not the taxpayer. Moreover, all of the above who are involved in long-term care will see unpredictable costs eradicated and anticipated costs brought under control.

. . . [Middle sections omitted] . . .

The Life Insurance Contract Conversion Plan

The life insurance conversion plan that I am proposing provides access to a potential LTC funding stream in the trillions, because the one thing that most Americans have is life insurance. In 2007, 78% of Americans were covered by some form of life insurance, and policies have an average face value of $130,000. In aggregate, the nation's total life insurance protection is $10 trillion.[5] Over half of such policies are individual policies, usually intended to provide a death benefit to a dependent spouse and minor children. Of these 55% is some form of permanent or whole life insurance, nearly 30% of the aforementioned $10 trillion.

Life insurance is a relatively safe proposition. The industry is extensively regulated, and individual companies are required to maintain financial reserves mandated by the State in which they sell policies. Such regulations insulate it during economic downturns. To date, even AIG's life insurance division has remained solvent and profitable. (Apparently the same cannot be said for the long term care insurance industry: a 3/18/09 Wall Street Journal article ("Worry Grows Over Insurers as Ratings Slip") reported on the rising number of long term care insurance companies taken over by State Insurance Commissions because of their financial instability. LTC insurance is also subject to premium increases; LTC policyholders have experienced (and are now experiencing) unpredictable rises in premium costs.

The need for life insurance often changes as one ages and minor children reach adulthood. Often the death benefit is inherited by beneficiaries or included in the owner's estate. The conversion of such policies into flexible "end-of-life" policies would create a major funding stream for long term care. Converted policies could be designed to provide flexibility: they can be used to pay LTC costs, which would otherwise be charged to Medicaid - and ultimately to the American taxpayer. They can be used to provide a death benefit. The remaining death benefit would still be passed down to beneficiaries, minus the insured's LTC expenses.

One important advantage to conversion is that life insurance policies purchased twenty or thirty years ago are likely to be well-funded, and with substantial cash values, because the actuarial assumptions are based on mortality rates that do not reflect the U.S.'s marked increase in life expectancy. U.S. mortality rates and life expectancies have improved dramatically since 1949, when the first baby boomers were born. At that time, male's life expectancy was 66, females, 71; in 2006, males had an average life expectancy of 75; females, 81. A policy purchased by a 30 year-old male in 1960 might assume a life expectancy of 65. Thirty years later the life expectancy may be 68; but the policy would set aside cash value as if the mortality expectations were unchanged. In addition, mortality rates used for life insurance nearly always lag behind actual experience, for they are calculations based on census data, which are at least 10 years out of date.

There are precedents and experience to draw on that argue for the conversion plan's feasibility:

* The federal HECM Program successfully links two types of financial products: the reverse mortgage and long term care insurance.

* The Partnership for Long Term Care managed to work with 50 state insurance commissioners to approve policies and create incentives for the purchase of long term care insurance.

* Life insurers have decades of experience developing hybrid life insurance policies that combine family income protection with other financial goals. Further, the sector's support of the proposed conversion would advance one of its major marketing strategies. A recent study declared that "the most significant opportunity for organic growth in the life insurance industry is represented by the retiring baby boomers. As they shift to retirement, they will seek opportunities for low-cost income-producing financial products.[6]" Policy conversion could help open doors to potential customers.

Who Benefits and How

This proposal provides strong incentives for public and private support.

Individual Consumers: the end-of-life policy would provide flexibility to the consumer: s/he would be able to pay for LTC as well as life insurance through one contract. In addition, a converted policy would offer protection for the consumer's insurability for LTC insurance coverage. Many consumers simply cannot afford LTC insurance as they grow older and if they are in poor health. Chiefly, though, older consumers would have peace of mind, in knowing that they can pay for LTC and preserve remaining assets for their beneficiaries.

Government: The proposed plan would greatly reduce Medicaid costs, a clear advantage to states facing draconian budget shortfalls in the immediate and foreseeable future. Reducing the enormous costs of Medicaid would create a new funding stream to support health care reform.

Insurance Industry: would benefit from the opportunity from the marketplace expansion life insurers could experience through this plan:

* the strong consumer incentive to purchase additional insurance in end of life policies. The average life insurance policy death benefit is $130,000, which may be sufficient for estate purposes, but insufficient to cover the average 2.5 year needed for LTC-a clear argument for the purchase of additional insurance. Consumers seeking coverage for LTC as well as life insurance.

* The opportunity to market new products to aging Baby Boomers, good prospects for annuity and other retirement distribution products.

LTC Providers: LTC institutions would benefit from a reduction in the costs associated with collecting, managing and reporting on Medicaid funds, enabling them to better focus on the provision of high quality and compassionate care.

Implementation Steps

The following outlines the steps needed to make the conversion concept a reality.

* Recruit an advisory council that includes representation from state and federal governments, the insurance industry, state insurance commissions, health care finance commissions, the long term care sector, and the network representing aging consumers and aging services, such as AARP and the Robert Wood Johnson Foundation;

* Conduct actuarial research to set industry-wide standards for policy conversions,

* Develop and pilot a conversion program prototype,

* Formulate a budget to support the nation-wide conversion,

* Develop legislation necessary to implement nationwide conversion,

* Conduct public information and legislative lobbying to further the enactment of legislation, and

* Establish benchmarks, monitor achievement, and revise strategies to meet program goals


The proposed life insurance conversion plan is a bold and high stakes program, but it needs to be addressed now, if we are to have any control over the LTC funding problems that are bearing down on us. If we are ever to truly make significant changes in our health care system and address the needs of the uninsured, we will first need to reduce the monumental burden of LTC. One of the advantages of the breathtaking, turbulent economic crisis is that we are becoming used to astronomically high numbers and the huge and sweeping actions required to stabilize the economy. We need approaches that are scaled to the enormity of the problems we face. This life insurance conversion proposal responds to the very real dangers this country faces in caring for the elderly as well as the challenges it faces in reforming its health care system.


Footnotes for included sections:

[5] Annual Report, 2007. American Council of Life Insurers

[6] 2008 Life Insurance Industry Outlook, Ernst and Young.