Long-term care insurance is considered a valuable benefit by employees, but advisers seldom share their enthusiasm.
“It's very inexpensive, but I don't like it a whole lot,” said Robert Straka, president of GrandView Financial Group LLC. “There are a lot of moving parts to it — can you take it if you [go to] work somewhere else and convert to an individual policy?”
Much of the ambiguity stems from the actions of clients when it's time to enroll into the group plan. Employees run into a choice of benefit levels, a choice of the benefit period, and options of how to expand the LTC coverage.
Typically, participants can select an inflation protection option or they can choose a future-purchase option, which allows employees to elect whether they want to increase their benefit levels out of their own pocket.
The trouble is, clients tend to go with the least expensive options, according to advisers, and they lack the foresight in their 30s and 40s to consider the ramifications of those choices.
“People go with the cheapest policy and inflation option,” said Stuart Armstrong, a registered representative at Centinel Financial Group LLC. “If you exercise the policy options, it gets really expensive. For people who really want to purchase a policy that's going to be with them for the rest of their lives, they're often better off going outside the plan.”
He added that clients in their 30s may want to consider putting that money toward retirement instead.
People covered under group plans make up about a quarter of the total LTC market. Some 2.2 million individuals had LTC insurance that was offered through an employee benefits program in 2009, which is flat from the prior year. About $1.7 billion in total premiums for employer-offered LTC policies was collected last year, up 2% from 2008, according to data from LIMRA, a financial services research and consulting organization.
New sales of group LTC insurance were dwarfed by those coming from individual LTC policies; the former picked up $123 million in new group premiums last year, while the latter had more than $465 million in LTC sales, according to data from LIMRA.
Major writers of new group LTC business include Unum Group, CNA Financial Corp., John Hancock Financial Services Inc., MetLife Inc. and Prudential Financial Inc., according to LIMRA.
Some advisers and agents manage to intercede with their clients during the employee benefits enrollment period, during which they have to decide whether they want to enroll in the employer's plan. Advisers ask clients to review their options and to determine how much of a role they want group coverage to play in long-term-care planning.
The conversation is similar to the discussion for individual LTC coverage, noted Phyllis Shelton, president of LTC Consultants. She broaches the topic of chronic illnesses such as Alzheimer's, as well as longevity, the family and support system available to the client, and the amount they're willing to pay. In these cases, the LTC-planning conversation actually takes place before the client hits the typical age for LTC planning — which tends to be in the 50s.
“The average age when we have the conversation [for group LTC] is 46, and with individual LTC, it's 56,” Ms. Shelton said. “People are experiencing the offering at the work site and asking planners about it.”
She also noted that if clients pay for their coverage at work and plan early, advisers don't have to worry about signing off a chunk of assets later when the client seeks individual coverage.
Whether clients simply keep the long-term-care coverage they bought at work, supplement it with more individual coverage or drop it altogether in exchange for an individual LTC policy depends on a handful of factors.
For instance, clients may want to consider supplementing their coverage if they have a benefit period that's only three or four years and they expect to live long. Similarly, if they want to expand certain aspects of the benefit — for instance, many group plans cover only half of home care costs — they may also want to consider bolstering their policy.
However, sometimes it makes sense to drop the coverage and go for an individual policy, especially if the client would rather not deal with making claims with multiple companies. “If we have to supplement it, we would just drop the group policy if they're eligible for individual LTC,” Mr. Straka said.
Further, the individual product can also be designed better for the client's individual needs, said Candace G. Kaplan, chief executive and president of Kaplan Financial Group.
Still, the group policy provides a benefit for employees who might otherwise be totally unable to get individual LTC coverage. The daughter of one of Mr. Armstrong's clients had an aggressive form of Lou Gehrig's disease and purchased coverage through a group plan at 38.
“It might be the easiest way in terms of menu options to get into the door,” he said. “And if you have a family history [of chronic conditions], you should look at all options available.”
E-mail Darla Mercado at [email protected].
