The 2020 Insurance Barometer Study by LIMRA, showed that over the past decade, life insurance ownership had decreased 9% while long-term care policies have increased by 20%. This is hopeful news from the insurance industry research resource, as they also report that nearly 80% of those older than 55 do not have enough money in their retirement savings that they will likely need to cover their medical expenses. Innovations in long-term care products—especially hybrid products—in addition to favorable tax treatment have bolstered the interest in this important insurance coverage. In 2017, nearly four times as many hybrid policies were written compared to traditional long-term care policies.
Hybrid policies have been in the marketplace for many years and were granted favorable tax status in 2006 when the Pension Protection Act allowed for favorable tax treatment for funds used for long-term care events. Hybrid policies generally combine a cash value life insurance policy or an annuity with a long-term care feature that allows the policyholder to use the growth tax free for medical expenses. Some policy options provide policyholders guaranteed their premiums returned should they never need the funds for long-term care. Consumers are no longer bound to a “use it or lose it” model for long-term care policies. Since the base policy is often a life insurance product, business owners may be able to consider the long-term care portion of the premiums a business expense, which makes hybrid polices even more popular. Furthermore, hybrid products can provide coverage for those with medical issues who would otherwise be ineligible for coverage.
The survey was conducted in January 2020, pre-pandemic, which is interesting to note because of the rising trend in online purchase preferences for insurance products. As American consumers have grown accustomed to online transactions, more people have declined the face-to-face meetings with an insurance agent or broker. That’s not to say that consumers must research and find policies by themselves. A trusted insurance agent is still beneficial for obtaining a policy that is tailored to your needs. The online trend is a result of the insurance industry becoming more efficient. From shopping to underwriting, to application and delivery, the insurance industry has benefited from shifting to an online marketplace—something that proved to be an advantageous transition when the COVID-19 pandemic forced businesses to cease in-person meetings.
A trusted insurance agent may use an online tool to gather more information from you to understand the facts and your situation, aiding the underwriting process. This enables the agent to shop for the policy with more accuracy. It also allows the agent to pivot to find a product that is appropriate and realistic for the circumstances given. The underwriting process has also become more efficient, with phone interviews and fewer physical exams. Underwriting has benefited from electronic medical records that began with the Affordable Care Act of 2010, as they now have access to roughly 10 years of your medical history. Finally, with electronic delivery of a policy, financial planners can also easily see what insurance policies are in place and position a client’s assets accordingly.
If you have questions about repurposing existing life insurance or an annuity product to include a long-term care feature, the experts at Henssler Financial will be glad to help: