A New Kind of Insurance Could Expand the LTC Marketplace

For demographic reasons, growth prospects for the long-term care insurance (LCTi) market remain attractive.  Agent frustrations, however, are mounting with ever tougher underwriting standards, longer underwriting turnaround times and rising premiums.  The result is a growing population of consumers who either want LCTi but don’t qualify, or want it but can’t afford it.  Fortunately, a metamorphosis of sorts is taking place with critical illness insurance to fill the insurability and affordability space evacuated by LTCi carriers.  The new critical illness insurance is providing a much needed and welcome alternative for both consumers and agents.

Critical illness plans already cover the types of health conditions that cause the majority of long-term care claims, so adapting the product required relatively little re-tooling.  The typical “one & done” lump-sum cash benefit paid upon diagnosis was changed to a monthly cash benefit paid over a period time, typically a shorter duration than most LTCi benefit periods.  Enhanced benefits for care received in a long-term care facility were added along with full benefits for a diagnosis of Alzheimer’s disease.  In addition, restoration of benefits was included to accommodate multiple diagnoses and claim payouts.  The generic term “critical illness” was then tweaked to “Critical Care” to lay claim to the new marketing territory between the two product types—LTCi and CI.

Agents should resist the temptation of drawing a direct comparison between “Critical Care” and LTCi because the products are fundamentally different in many ways.  Critical Care is designed, first and foremost, as a supplemental health insurance product for the broad market of under-insured individuals experiencing higher premiums, deductibles and co-pays, along with reduced health insurance benefits.  The new critical illness, or Critical Care insurance, is designed to also be attractive to the niche market of individuals who are either not healthy enough or wealthy enough to obtain traditional LTCi.

Benefit access with “Critical Care” is based upon the diagnosis of a specific medical condition rather than on being “chronically ill.”  Policyholders, therefore, can potentially trigger benefits sooner with Critical Care than with traditional LTCi; however, there are also many conditions that will be paid under traditional long-term care that will not trigger benefits in a Critical Care plan.  Of note, according to the 2011 American Association of Critical Illness Insurance report, 70% of all LTCi claims paid are a result of stroke, cancer, heart attack and Alzheimer’s disease, so the crossover in the risk protection provided by the two product types is substantial.  This fact, combined with the underwriting differences, has created a safe haven—and a new solution—for agents and their clients.

More new carriers with new and creative solutions are exactly what the market needs most at this time.  Traditional LTCi is simply not for everyone; sales penetration rates tell us so.  The government will never be the answer for most.  Just as life and annuity products with living benefits for LTCi are appropriate options for some consumers, Critical Care is going to help breathe new life into a market that, quite frankly, could use some right about now.

By  John Hennessey for Agent eNews.  John Hennessey is the general manager of American Independent Marketing, a national distributor of long-term care and critical illness products. 

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