Now is the right age; Linked Benefit LTC – Approaching younger clients
By: Shawn Britt, CLU, CLTC, Director, Advanced Consulting Group
Long-term care (LTC) coverage, once thought to be for “older consumers”, has been attracting young buyers over the last 15 years. The Baby Boomers are the first generations to be hit hard with the LTC needs of parents and their eyes are opening. The change in the average age of a person purchasing LTC coverage barely moved between 1990 (age 68) and 2000 (age 67); but as the Baby Boomers started nearing retirement, movement in the age of purchasers began a move downward, and is now at age 57.
The LTC industry has changed as well. Insurance companies have learned more with time and claims experience, and they are getting better at underwriting and avoiding risks that impact a company’s bottom line. While the percentage of LTC applicant declines have held steady for persons age 70 and older, the percentage of declines for younger applicants in increasing. And while declines are still relatively low for people age 69 and younger, the decline rates for applicants below age 50 has surprisingly doubled since 2007. Clients waiting to purchase LTC “until later” risk an increase in the chance they won’t qualify for a policy.
Decline rates for traditional LTC policies
| Age | 2007 | 2012 | 2014 |
| Under 50 | 7% | 12% | 14% |
| 50-59 | 14% | 17% | 21% |
| 60-69 | 23% | 25% | 27% |
| 70-79 | 45% | 44% | 45% |
A change in Linked-Benefit LTC policies
People wanting the features of traditional LTC policies without the risk that comes with such a purchase may have an interest in Linked-Benefit LTC coverage. Fortunately for consumers, another industry change has come with lined-benefit LTC products. These policies were once marketed as a single premium asset based repositioning of an asset. The single premium purchased a nice amount of LTC coverage; but never if needed for LTC benefits – the policy would pay a death benefit at least equal to the amount that was paid. But an extended low interest rate environment has left insurance companies weary of accepting an abundance of single premiums, thus companies have opened up the opportunity for consumers to purchase linked benefit policies with premium schedules of up to 10 ears – and with monthly premium payments!
Linked-Benefit LTC coverage – the “third car” payment
These new premium payment opportunities open a new door for younger clients who are high earners. It is not uncommon for individuals who are younger to have most of their assets tied up in qualified funds such as 401(k) accounts, IRAs, etc. Thus they have no sizeable liquid non-qualified or after tax asset that can be repositioned. Yet, these high earners may have excess monthly income that could be devoted to a premium payment for a linked benefit LTC policy.
One way to position such a purchase is to use an analogy of purchasing a third luxury car
- A “car” paid for with monthly payments and paid up in ten years
- A “car” that won’t lose value
- And a “car” that will provide “good mileage” if life’s journey includes the need for long-term care services
Case study
Our hypothetical client is Henry, who is 50-years old, married, in good health and does not smoke. He recently had the experience of juggling his own responsibilities of job and family with his mother’s need for long-term care assistance, which also meant providing financial help. Henry wants to make sure his children are not faced with the same challenges, so he is looking for good LTC coverage that makes sense for his budget. Henry earns an ample incomes and can easily devote a payment towards the equivalent of a “luxury car”.
Henry will purchase a Nationwide YourLife CareMatters Linked Benefit cash indemnity policy:
- He will start with a monthly LTC benefit of $2500 a month.
- LTC benefit pool of $204,061 – add 5% compound inflation so coverage grows.
- His monthly premium will be $606 a month for 10 years, at which time he will have a paid up policy.
- Premium payments of $7,270/year over ten years will total $72,720.
- At age 85, Henry will have a monthly LTC benefit of $13,134 a month with a total available amount for LTC benefits of $1,072,002.
Henry’s growing LTC benefits
| Age | Monthly Premium | Annual Premium | Death Benefit | Month LTC Benefit | Total LTC Benefit Pool |
| 50 | $606 | $7,270 | $60,001 | $2,500 | $204,061 |
| 61 | $0 | $0 | $142,669 | $4,072 | $332,393 |
| 70 | $0 | $0 | $119,954 | $6,317 | $515,651 |
| 80 | $0 | $0 | $96,690 | $10,291 | $839,941 |
| 85 | $0 | $0 | $84,421 | $13,134 | $1,072,002 |
| 90 | $0 | $0 | $83,605 | $16,762 | $1,368,176 |
His monthly LTC benefits can be used as he wishes since Nationwide places no restrictions on how LTC benefits are used. If Henry never needs LTC services, a death benefit will be paid to his beneficiaries, so there is no “use it or lose it” risk. As long as Henry pays his premium payments as planned, his premium is guaranteed to never increase, and his policy benefits are guaranteed.