Industry Comes Up Short On Long-Term Care

With millions of baby boomers trying to cope with their retirement needs--opening up 401(k) plans and buying annuities en masse--the market for long-term care insurance should never be better.

Yet despite the potentially huge liability LTC insurance covers and the product's relatively cheap cost, sales are far from what they could--and should--be. And that's mystifying.

A big part of the blame has to fall on the industry--the insurers who underwrite the coverage and the agents who market it. That is a reasonable conclusion to draw from a recent study revealing that most Americans really don't have a clue about what the coverage actually will cost them.

The study--commissioned by John Hancock Mutual Life and the National Council on the Aging--found that those queried believe they'd have to cough up $177 a month for coverage, when in reality the monthly premium for a healthy 50-year-old should be about $35, or $1.15 per day.

Given that incredible misinformation, it's amazing that even 16 percent of the 1,000 respondents surveyed by phone in March who do not have LTC policies said they might still buy the coverage in the next five years. (Only 11 percent now own an LTC policy.)

"Americans can't plan for or make the right choices if they don't know or understand their risks of needing long-term care and their options for paying for it," lamented National Council President James Firman, in a statement calling for improvements in consumer education.

The survey also revealed gross ignorance about what long-term care insurance actually covers. Most see LTC coverage as a way to pay the enormous bills--$40,000-a-year or more--burdening those stuck in a rest home or nursing facility. The majority are not aware that 80 percent of elderly people getting long-term care actually remain in their own homes or get a helping hand from community day care facilities, let alone that LTC policies can help offset these costs.

This is mind-boggling at a time when more and more of those stuck in the sandwich generation are taking care of elderly relatives and children at the same time--often in their homes, sometimes with the help of day care and home care organizations. (Indeed, the survey found that even among young adults--those in their 20s--about 20 percent actually provide hands-on assistance for their relatives.)

In addition, despite the fact that the survey documented widespread concern about institutional care costs, fewer than half of those queried--only 44 percent--admitted having done much planning to cover their long-term care needs. Meanwhile, less than half felt they had enough savings, insurance and other resources to cover even one year of institutional care.

This lack of awareness, information and coverage among a very vulnerable generation of Americans offers insurers and their agents a tremendous opportunity. This market can generate explosive growth if the industry does its job getting the word out.

"I think [LTC] can be one of the strongest growth areas in the insurance field," said Health Insurance Association of America President Bill Gradison. "The aging population, coupled with a growing sense that government won't pay for this anymore, is building demand for this product."

But given this country's irrational reluctance to face reality when it comes to aging and its inertia in saving for future expenses, the insurance industry will have a tough sell despite having all the facts on its side.

A major educational campaign is required to alert people about their long-term care needs, as well as explain how LTC policies can ease their worries about aging at a very reasonable cost.

Group sales through employers is one prime candidate, most probably as a benefit option in a cafeteria plan. Seventy percent of those surveyed whose employers do not provide LTC coverage wish they did. And 60 percent of those who have already gotten LTC coverage bought their policies through employers or unions.

Agents need to push LTC along with life, health and other coverages. LTC is a natural complement to round out a family's personal insurance portfolio. Failing to help clients account for this exposure is, at least in spirit, an errors and omissions violation.

Most people don't appreciate the risk they're taking by not taking advantage of long-term care insurance. Agents and insurers must drive the point home that such exposure can ruin a family financially and that LTC coverage is their best bet to keep their life savings and standard of living intact.

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