Younger Americans are beginning to rethink their need for long-term care (LTC) insurance.
A recent industry survey conducted by the American Association for Long-Term Care Insurance (AALTCI) shows that one-third of buyers of individual LTC policies in 2007 were under the age of 55.
"Long-term care planning is now an integral part of mainstream financial planning, especially for baby boomers," observed Jesse Slome, executive director of the AALTCI.
But as consumers warm up to the idea of owning LTC insurance, will they be open to a relatively new type of product, one that combines life insurance and LTC coverage?
Beth Ludden, senior vice president of Product Development for Genworth Financial, certainly hopes so. Her company created Total Living Coverage, a combination universal life and LTC product that is among the handful of combo products on the market.
But as Ludden sees it, the key to successfully marketing Total Living Coverage begins with demonstrating to financial planning professionals how the "double duty" nature of the product enables clients' money to work much harder for them.
Loaded with Potential
Combo products are relatively new to the market, but the idea for them is not.
"The idea of combining products has been around for a while," Ludden explained. The idea took root in the 1980s, when, in the wake of AIDS, the insurance industry began to explore the concept of using a life insurance policy as a living benefit. A few companies tried to do this, but it did not take hold at the time. Ludden said that's because accelerated death benefits were fairly limited at that time-for instance, the benefit paid for nursing home care only.
In recent years, however, many carriers began to revisit the idea of a combined insurance-LTC product because of the potential appeal such combo products have for consumers. First, as mentioned, a combo product performs a double duty for clients: they receive life insurance with a death benefit and money for long-term care situations, whether for a defined period of disability, to assist clients with the cost of a nursing home, or another need.
The second appealing quality of a combo product is that the policy holder is guaranteed to use the policy. This, according to Ludden, addresses the issue that has made many Americans reluctant to buy a standalone LTC product.
"Clients object to spending money on a long-term care policy and not using it, but with a product like ours, they will use it one way or another," she said.
And, Ludden noted, Total Living Coverage offers policy holders a convenient option: for the first 15 years of the policy, the client can cancel the policy and receive his premium in full.
A Robust Product
All of this, Ludden said, is what makes Total Living Coverage a "robust" product, and that's what Genworth was aiming for when it tested the product on a pilot basis in 2005, and then fully introduced it the following year. Ludden believes it's the product's robust nature, and the fact that it gives clients the best of both worlds in terms of coverage, that sets it apart from similar products on the market.
"Total Living Coverage offers clients a HIPPA tax qualified coverage for long-term care needs, exactly as a standalone LTC policy would," she said.
Total Living Coverage is for anyone from 18 to 79, but it's targeted to a certain "psychosocial demographic," Ludden said. She described that targeted client as a smart investor, in pretty good health, who doesn't envision that long term care is necessarily needed for their future but wants to be covered just in case.
Would clients ever need both a combo product and a separate LTC policy? In certain situations, yes, Ludden said, especially those who foresee their current health situation perhaps leading to a need for LTC coverage. Such a client could put a little less up front into their Total Living Coverage policy and add a separate LTC policy just to "hedge their bets."
Having both a combo product and standalone LTC policy is also a smart option for a married couple, Ludden noted. For example, the wife, who statistically is more likely to need long-term care for herself at some point than her husband, could own the LTC policy, and the husband could own the Total Living Coverage policy. Should the husband die first, the life insurance proceeds would go to his wife, who also would be protected by her separate LTC policy.
(As a bonus, if a couple purchases both Total Living Coverage and a standalone LTC policy from Genworth, they receive a discount.)
A Favorable Reception
Given the numbers from the AALTCI survey, it's not surprising that Total Living Coverage is enjoying a favorable reception so far from both financial planning professionals and clients, according to Ludden. The key for marketing the product, she said, is to show the first group how the second group can benefit from it.
"Total Living Coverage has opened up a new distributor line to use," Ludden said. Professionals who aren't interested in learning all the jargon about LTC products but who are knowledgeable about and comfortable selling universal life products like the idea of selling a combo product.
As Ludden explained, it's up to financial professionals to demonstrate to clients how they can "reposition existing assets" from a safe place, such as a CD or money market, to a better-performing product that serves a double duty.
For instance, if a client has $200,000 tucked away in a CD, he could place $100,000 in Total Living Coverage and then invest the other half however he wants.
Growing the Market
Currently, Genworth is one of a handful of companies that is offering a combo product like Total Living Coverage. Therefore, the market share of combo products is "pretty small," Ludden said. According to stats she cited from 2006, the most recent year for which data is available, only 100,000 combo policies have been sold.
Lincoln Financial Group and John Hancock are two notable competitors with combo products, along with New York Life and The Guardian. Ludden said Lincoln Financial has sold the most combo policies, but she said that Genworth would like to become the "gold standard" in the industry for combo products. In order to attain that status, Ludden said Genworth has to accomplish two goals.
First, the most immediate hurdle for Genworth to overcome in marketing Total Living Coverage is getting it approved in all 50 states. Currently, it has been approved in 45. She acknowledged the product approval process takes a while, but the company expects full approval for those remaining five states sometime this year.
Ludden doesn't believe that the fact that LTC products are highly scrutinized is hindering Genworth's ability to get approval for Total Living Coverage. Since the company is already in the LTC business, Genworth understands the lengthy process required for approval for a combo product. She thinks it would be tough for a carrier who doesn't already sell LTC products to jump into the combo market, since they haven't navigated the LTC landscape yet.
Second, Ludden said it's incumbent upon Genworth to "capture the hearts and minds" of financial planning professionals with the benefits of Total Living Coverage. Once professionals understand how well the product is designed and how it can benefit their clients, Ludden believes that consumers could catapult Genworth to the top of the combo market.
The trick is to appeal to a broader demographic, to those outside the relatively small group of clients for whom a standalone LTC product is appealing. After all, Ludden pointed out, no one wants to think about the need for long-term care coverage.
"We need to help professionals show clients how they can take assets they've saved for a rainy day and make them work better for themselves," she said.
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