The Evolution of the Long-Term Care Conversation

Somewhere in the last decade, long-term care stopped being a separate product conversation and has become in most cases, an additional feature placed within life insurance polcies. If you’re an advisor writing life insurance at all, you are already in the long-term care business whether you intended to be or not.

This creates a quiet problem for most advisors. A hypothetical client in their late fifties asks, what happens if they need care? You can answer that inquiry in a number of ways. 

• A stand-alone LTC policy

• A hybrid life/LTC contract

• A 7702B rider on a permanent Life Insurance policy



• A 101(g) chronic illness rider with no up-front cost

Four very different answers with four very different claim experiences and no obvious rule for which one belongs in front of which client.

This challenge doesn’t just affect advisors who are seeking new clients but the experienced advisor with a tenured book of business as well. The product category has fundamentally shifted for the industry, and it calls for a discussion into what is appropriate and when.

Then vs. now: how the market got here

Twenty years ago, the stand-alone long-term care insurance market was the main solution for a long-term care coverage need. Industry sales peaked at roughly 750,000 individual policies per year in the early 2000’s and was distributed by over 100 carriers in the marketplace. The pricing assumptions behind those policies including variables such as, lapse rates, interest rates, and claim incidences amongst others turned out to be erroneous in nearly every assumption. Lapse rates were a fraction of what was priced, interest rates fell and remained low putting pressure on reserve pools and claims came in more frequently and lasted longer than expected.

What followed is one of the more instructive carrier-behavior case studies in our industry's recent history. Carriers exited. Blocks were sold, reinsured, or put into runoff. In-force rate increase filings of 40% or more became routine, and clients who had done everything right received letters asking them to pay substantially more or accept reduced benefits. By the late 2010s, stand-alone annual sales had fallen to roughly 50,000–60,000 policies, with fewer than a dozen carriers actively offering stand-alone policies.

Meanwhile the combination market grew. Life/LTC and life/chronic-illness combination products passed stand-alone LTC in annual new premium around the middle of the last decade and have steadily increased. The appeal is structural, not promotional; a death benefit exists whether care is ever needed, premiums are generally guaranteed, and the "use it or lose it" objection most common against stand-alone LTC proposals is no longer relevant.

This history matters because it tells advisors what they are choosing between. Stand-alone LTC is a pure-risk product with maximum benefit leverage per premium dollar and a demonstrated history of pricing risk being passed back to the policyholder. Hybrid and rider designs trade some of that leverage for premium certainty and a guaranteed outcome. Neither is the absolute solution for all scenarios. 

A Suggestive List of questions to identify the proper strategy

1. Is this money already committed, or is it new premium?

If the client has a six-figure CD, a legacy non-qualified annuity with embedded gain, or an old paid-up policy with limited to no purpose, repositioning into a hybrid product is often the cleanest answer. There is no new money out of the client’s cash flow, and 1035 exchanges into qualifying hybrid contracts can carry significant tax advantages for LTC benefits. If instead this is a budget line item funded from income, stand-alone LTC usually buys materially more daily benefit per dollar, and the leverage argument becomes hard to ignore.

2. How much benefit does the client need?

National cost-of-care survey data has put the median private nursing home room above $100,000 per year, with wide state-level variation; A client in Connecticut and a client in Oklahoma are not necessarily encountering the same cost of care. We would suggest that advisors discover the actual amount for care in the client's respective resident state and the preferred care setting (Home care vs. assisted living facility, etc.) before you pick a chassis. Stand-alone policies with compound inflation protection still deliver the most benefit at high need levels while hybrid products are often sized to supplement, not to fully fund the client’s full cost of care.

3. What is the client's health and age?

Stand-alone LTC underwriting maintains the strictest underwriting criteria in our business. Decline rates rise sharply after age 70, and cognitive screening eliminates many applicants a life underwriter would happily accept. Many hybrid and rider designs underwrite closer to life standards. For an impaired or older client, the practical question is not which product is better, but which product is attainable?

4. Is the rider under consideration designated as 7702B or a 101(g)?

This distinction deserves some consideration. A 7702B LTC rider is a long-term care insurance benefit with defined requirements to initiate a claim and typically has a specified monthly amount made available to the client.  The payment amounts are paid via a reimbursement arrangement where the client needs to provide proof of care, or through an indemnity payment structure where proof of care is not required. The payments applied against the death benefit and when the client passes away, the net death benefit is paid to the beneficiaries listed on the policy.

A 101(g) chronic illness rider is an accelerated death benefit often available at no additional premium yet frequently has a discounted acceleration benefit whose amount is determined at the time of claim. Thus, if the client has a $500,000 death benefit and wants to initiate a claim with the 101(g) chronic illness rider, the insurance company will order an exam on the client and generally make an offer considerably lower than the $500,000 death benefit for the client. Depending on the carrier, the claims are paid in lump sum and for others it is paid over a period of time. 



These riders are not interchangeable and when positioning to clients, it should be made clear what they are purchasing. The last thing you want as an advisor is to tell a client that they have a specific coverage and then they believe it works differently that what you have generally told them.

5. What is the client's tolerance for future repricing?

We would suggest you ask this directly. Some clients will accept rate risk in exchange for leverage. Others will not, particularly if they watched a parent receive an in-force rate increase letter. Guaranteed-premium hybrids exist largely because of that occurrence.

A reasonable next step

In preparation for your next LTC meeting with clients, see whether the five variables resolve the case faster than your current approach. Understanding these policy types and their distinctive outcomes is critical to becoming a better advisor and creating better plans for your clients.

If this is something you would like to discuss further or integrate more effectively into your practice, give us a call and let’s have a discussion.

Frequently Asked Questions