In 2004 , Genworth , consistently at the top of LTC underwriting , flew me to Virginia to meet with some of their leadership team to discuss the bind they were in . I had just recently exited as an executive for a major investment / insurance company that was purchased by Prudential , and I had some experience with price structuring , branding , and distribution , and they were hoping to gain some insight .
In a nutshell , the initial mistake insurance companies made is that they built the LTC policy on the equivalent of a homeowner insurance platform . For insight , one of the unusual dynamics of a homeowner ’ s policy is that a significant portion of the policies terminate ( meaning people sell their home ) without the owner filing any claims , so there were years of premiums collected without any payout . Now you know why you see so many State Farm and Allstate commercials .
Regarding LTC , there are three premium / payout scenarios that are possible , with the assumption that a client starts the policy generally in their 50s :
1
They fund the policy for a period of time and at some point , often in their 60s , they stop paying premiums and cancel the policy .
2
They fund the policy and at some point die , without any benefit paid out .
The incidence of dementia increased by 117 % between 1990 and 2016 , with the number of dementia cases increasing from 20.2 million in 1990 to 43.8 million in 2016 . Within a matter of 10 years , the LTC pricing model blew up . Medical science was diagnosing dementia earlier in a person ’ s life and through recognition and better treatment , helping the patient live longer . Therefore insurance companies not only started paying out sooner , but also longer .
It quickly became obvious that in order for the LTC policy to be viable , the insurance company needed to limit the payout on the back end , make the underwriting process more strenuous on the front end , and charge higher premiums . People were not happy with those changes and simply stopped buying the product . One by one , the near two dozen major companies that offered LTC stopped making it available . Today , depending on capacity , there are three or four companies that make it available .
One new derivative was designed a little over five years ago , which is actually a life insurance policy that allows you to spend a portion of your death benefit as a LTC benefit . It is a reasonable solution . It is a fraction of the “ Cadillac ” plan , but for those who do not have millions set aside in personal assets , it is worth considering . Even if you have substantial assets and categorize yourself as “ self-insuring ”, when assisted living expenses begin , especially if a form of dementia is involved , I don ’ t care how much money you have – when that snowball starts rolling downhill , it will mow through all the money . An alternative that offloads some of the risk and if you die , still provides the heirs with a benefit , is worth considering .
3
They fund the policy and generally in their late 70s or 80s require assistance and the insurance company distributes benefits until death .
So , as you can see , only one of the three scenarios actually require the insurance company to pay out . That , to be rather pointed , is what is called a cash cow . Now you know why the early policies could afford to be priced as “ Cadillacs ”. Then something changed .
Rob Brinkman is the founder of Safe Harbour Retirement and one of the co-founders of AscendancyHealth . He has been in the financial services industry for over 30 years , opened his first investment firm for Edward Jones in 1987 , and served many years as Registered Principal and Executive for one of the largest investment / insurance companies in the world . He speaks internationally and was selected by Jim Collins , author of the New York Times bestselling book Built to Last , to panel his pre-release of the again bestselling book Good to Great .
For the past decade , Rob has focused on mentoring and coaching business owners and high-net-worth individuals on how to leverage their success more toward a life of meaning and significance . He offices in Texas and New York . Rob and his wife Sarah have five children , all of whom are conquering the world in their own unique way . You can reach Rob by email at : RobB @ AscendancyUS . com . www . northtexasdentistry . com | NORTH TEXAS DENTISTRY 27