An attractive proposition for long-term care consumers

We’ve blogged before about the attempts to legislate increased adoption of long-term care (LTC). One idea that can also help increase adoption is the “combo product”—an idea that brings together LTC and annuity products. A new article in Financial Planning looks at this dynamic. Here is an excerpt:

Why have sales of individual LTC insurance been slowing? Many observers cite the “use it or lose it” aspect of LTC policies; consumers might pay premiums for years-even decades-and never file a claim. Some potential buyers may be put off by the idea of “wasting” the money spent on LTC insurance premiums, says Carl Friedrich, a consulting actuary and principal in the Lake Forest, Ill., office of Milliman.

LIMRA puts the average annual premium at about $2,160. Even with some discounts, a married couple might be looking at an outlay of around $4,000 per year to buy coverage. Many individuals and couples probably tell themselves that they have other alternatives (sell a house, tap a portfolio, rely on a relative) to spending so much money to protect against a financial drain that might never occur.

Hence the appeal of combo products. If clients need coverage for long-term care, they have it. If their need for custodial care is modest or nonexistent, the money they spent on life insurance or annuity premiums will provide a payoff for them or their beneficiaries.

This appeal has resulted in significant business already. For 2008, first-year premium on combination plans was estimated at $650 million (primarily single premium), Friedrich says. That exceeded first-year standalone LTC insurance premiums (primarily annual premium) of roughly $600 million.