The development and rollout of new standalone long-term care insurance products has been almost non-existent for a decade. Aiming to break that trend, New York Life Insurance Company recently rolled out a new and innovative long-term care insurance product. This new product brings a shot in the arm to a market that has suffered a number of challenges over the past decade, as many large and reputable insurance companies have pulled out of the market and total sales have dropped significantly.
The steep decline in product development and insurance company participation in long-term care insurance is real and needs to be addressed. The exact cause of the decline is nuanced and complicated. In reality, the long-term care insurance market has suffered not because of one issue but a perfect storm arising from a variety of issues. In part, the insurance companies themselves are at fault because their assumptions were off. However, no one really anticipated such a drawn-out period of low interest rates.
Low rates have hampered the ability for insurance companies to be creative and offer better rates on certain products, including long-term care insurance. Insurance companies also miscalculated the lapse rates on long-term care insurance and ended up having to pay out on more policies than they priced premiums to cover. All of these factors have conspired to keep many companies out of the market. These dynamics have also forced many companies to raise premium rates on existing policies, creating ill-will in the consumer market place.
Instead of a strong focus on new long-term care insurance products, the market shifted over the past decade toward so called “hybrid” or “asset” based products that couple long-term care benefits to annuities or life insurance policies. These hybrid policies seem to appeal to many consumers because they are typically paid with a set number of premiums or with a lump sum payment. This can be attractive at a time when traditional long-term care insurance policies are experiencing rate hikes. Additionally, the “use it or lose it” aspect of traditional long-term care insurance is not an issue with hybrid policies because a policyholder will get other forms of insurance coverage in return. However, the downside of hybrid policies is that they are policies that are trying to do two things at once, so they are rarely ever the most efficient life insurance coverage or long-term care insurance coverage possible. In essence, people are giving up a bit on both ends to get a combined product.
While hybrid policies have doubled compared with the sales of standalone long-term care insurance policies, it would seem that there is still a natural role for the market for long-term care insurance, which specifically targets long-term care costs in a focused way that hybrid policies cannot. New York Life’s new policy is an encouraging and interesting development because its product also attempts to get long-term care insurance to middle wealth Americans in a more affordable way. It is also encouraging because it does not appear to be a knee jerk reaction product development. New York Life is not taking this offering lightly or just throwing it together – it has been in the works for some time now. As an extremely steady and reliable insurance company, New York Life brings a sense of stability to the market that is much needed. Its new take on the product is centered on simplification: come up with a product that is easy to explain and easy for consumers to understand.
The new offering aims at simplifying long-term care insurance by laying out insurance policies with simple features and coverage units from Bronze to Platinum plans, ranging from $50,000 to $250,000 of lifetime benefits. In addition, the offering provides options to customize plans as high as $500,000 of lifetime benefits and add shared coverage which can double the amount of benefit available to a policyholder when spouses or partners purchase coverage together. This streamlined approach could spark interest in a market that otherwise appears to be getting more and more complex in terms of both hybrids and in the traditional space. Furthermore, at least at this time, New York Life is keeping the add-ons or riders at a minimum, potentially holding down additional fees or costs associated with the product. Often, adding too many potential features dilutes the simplicity of a policy and increases costs.
Another interesting aspect of the new product is the focus on targeting middle America with an option to add some long-term care coverage, while not having to break the bank to get it. Long-term care insurance policies have often been viewed as an “all or nothing” solution, but this new layout is a better fit with how planning should be done for most retirees. In the New York Life scenario, a retiree or policyholder would cover some of the risk themselves and push some of the risk onto the insurance company. This can be a better approach because typically, fully pushing the long-term care risk onto the insurance company is just too expensive for most people.
Long-term care risk remains a truly daunting issue for many retirees. What most people need is long-term care planning, which can include self-funding, relying on Medicaid, working with family members, and purchasing an insurance product. New developments in the market are encouraging and help bring to light the need to do more long-term care planning. Insurance based products can be part of this approach, especially when they are included as part of a comprehensive retirement income plan designed for each specific individual and their unique situation