The Advisor's View of Long-Term Care Planning

3 creative ideas on fixing America's LTC insurance system

Posted by Tom Riekse Jr | Dec 26, 2014 6:06:00 PM



What's the next generation of LTC products going to look like? It's going to take creativity to come up with ideas that can make policies more flexible and affordable.

That was one of the  questions considered by members of the Society of Actuaries in a call for papers incorporating the state of LTC financing.  You can find all the papers here.  Although academic in nature, there is some really interesting findings.

 Here's are three of the ideas that people came up with::

1) Consider mandated coverage.  In his paper, Doug Andrews looks to Germany as a possible solution for U.S. LTC needs.  In Germany, people are required to carrier LTC coverage.  The premiums are paid through a combination of employer and employee cost sharing.  People without children pay more so there is flexibility in pricing.   For those with annual income above $50,000 they can opt for coverage thorugh a private insurer.  Of course, since everyone has coverage premiums are lower and no health underwriting is required.

2) Use money from 401(k)'s to help finance long-term care. Author Karl Polzer recommends that people with substantial 401(k) and other defined contribution (DC) balances be allowed to set aside a portion of their balance than be used to pay for LTCI premiums or used in a longevity annuity.  Existing minimum distribution rules often require money be taken out of plan accounts that could be set aside for LTC needs.

3) Let the client choose the investment strategy for their LTC plan.  Current LTC policies require that the insured rely on the conservative investment strategy that the carrier uses.  With long-term interest rates low this has been a problem!  However, authors Shang, Su, and Lin suggest that you could make LTC more affordable if the clients could elect to have more aggresive investments of their reserves.  Here is a comparison showing current policies with what they propose:


Of course, a lot of this depends on regulation that can help make creative ideas like this happen.  Some current products are using aspects of this.  The John Hancock Benefit Builder plan does give additional policy credit for better than expected interest rate returns.

Any other ideas that should be considered?

Written by Tom Riekse Jr

Tom Riekse, ChFC, CLU, CEBS is the Managing Director of LTCI Partners, one of the largest national distributors focused on long term-care planning. LTCI Partners works with financial advisors, benefit brokers, associations and anyone else interested in helping protect people against the devastating financial impact of a long-term care event.

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