The insurance industry is heating up in 2015, and some products have provided financial professionals with new ways to help clients reach their financial goals. Plans that combine annuities with long-term care insurance have become popular, despite only being on the market for a short time. These insurance plans demonstrate the strong demand for LTC policies, an area of the market that advisors can further explore with their clients.
Although high net worth consumers are unlikely to run out of money in retirement, these individuals are concerned about preserving their wealth for the next generation and beyond. By providing for themselves with long-term care options, these clients can pass on more of their money.
What do annuity/LTC policies offer?
People are living longer, and continuing advancements in medical care mean the amount of time people spend in retirement increases each year. This has made retirement more expensive than ever, and the numbers are likely to continue climbing. Long-term care occurs when a person needs consistent medical attention from a third party, either an in-home caregiver or the staff at an assisted living center.
In either case, the costs of long-term care can quickly add up. While this expense is unlikely to decimate a high-net-worth individual’s savings, it could have a sizable impact on the amount of money they can give to their beneficiaries when they pass on.
High net worth individuals are more likely to have LTC insurance than their less-wealthy counterparts, but there is still enormous potential for growth in this segment of the market. New combination policies that bind annuities to LTC insurance have had incredible success despite only being on the market a short time. Between 2012 and 2013, sales of these products increased from $44 million to $322 million, according to a survey from the Society of Actuaries. That gain indicates the burgeoning demand for LTC policies, and these products can yield major growth whether they are paired with annuity products or not.
Speaking with high net worth clients
A survey from Spectrem’s Millionaire Corner found only 37 percent of ultra-high net worth individuals currently have an LTC policy, and noted many of these consumers believe they will not need the protection a LTC policy provides because they are saving through other means or do not see it as a necessary expense. Since over 60 percent of this market currently lacks an LTC policy, advisors should view this as an opportunity to start a conversation about long-term care with their clients.
A conversation with high net worth clients about LTC options should focus on the emotional aspects of protecting net worth. Chronic illnesses or regular medical expenses can chip away at a high net worth client’s nest egg and diminish how much of their legacy gets passed to future generations. In Spectrem’s study, even consumers with the highest net worth revealed they were wary about the high premiums assigned to LTC policies. As health care costs increase, however, these policies become aligned more with the cost of care a person will receive.
Presenting clients with an accurate assessment of potential LTC costs makes the product’s value immediately apparent, and MarketWatch noted the conversation should be framed as a way to protect a family’s assets. A large untapped market awaits advisors who introduce LTC polices to their clients, and the need for these policies is more evident as high net worth individuals age and the amount of time they will spend in retirement increases.