Making LTC insurance more accessible

“[Advisors] told us that they want to help more clients qualify for the coverage and have more options to match the cost of the solution to the client’s financial plan,” says Paul Fryer, vice president, individual business management, with Sun Life. “So, we launched Sun Retirement Health Assist really to fill that gap.”

The new product comes a few months after Lévis, Que.-based Desjardins Financial Security Life Assurance Co. unveiled its Life LTC Advance – a hybrid product that combines LTC coverage with life insurance. Similar to SRHA’s attributes, LTC Advance is easier for clients to qualify for and is more affordable than a traditional LTC insurance policy.

Insurance industry-watchers are encouraged to see some innovation in the LTC insurance space; previously, there had been little difference among the products on the market.

“Insurance companies are looking for a way to be more relevant, to make their products more appealing,” says Karen Henderson, an LTC insurance specialist and CEO of Long Term Care Planning Network in Toronto. “I applaud the companies that are doing this.”

Henderson suspects that the new products will allow the industry to tap into a new market of prospective clients, particularly as these products reduce the cost of LTC insurance coverage. Specifically, the premiums on the new SRHA product are 30%-60% lower than Sun Life’s traditional LTC product. And premiums on a life insurance policy with LTC Advance included are, on average, 15% higher than a regular life insurance policy – a supplemental cost that amounts to significantly less than a stand-alone LTC policy.

“LTC has always been seen as sort of an elitist, expensive product,” Henderson says. “This [product innovation] is a welcome addition to the market, and I’m hoping that advisors will pick up on it.”

The introduction of more affordable LTC insurance products is especially welcome at a time when the price of traditional LTC products has been rising across the industry. Most recently, Sun Life announced in December that it was raising premiums on new LTC insurance polices by an average of 20% in response to low interest rates, which have squeezed the profitability of the products.

Next: Certain features dialed back
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Certain features dialed back

Industry players suggest that the new, low-cost alternatives will generate appeal among cost-conscious clients. However, industry-watchers warn that as a result of the lower premiums, certain features on these products have been dialed back considerably compared with traditional LTC products.

Coverage under SRHA, for instance, does not kick in right away. Given that the product is geared specifically toward retirees, coverage takes effect only on the later of five years after the policy date or on the policy anniversary following the policyholder’s 65th birthday. Furthermore, once the policyholder begins requiring continuous care, he or she must wait an additional one or two years before becoming eligible to make a claim. In comparison, most traditional LTC insurance policies feature shorter waiting periods of 90 or 180 days.

Some SRHA policyholders could end up being on the hook for several years’ worth of care-related costs – while continuing to pay their premiums – before their policy’s benefits kick in.

“The person has to come up with the premium amount, not to mention the LTC facility cost,” says Mimi Lee, an independent insurance advisor and owner of TruFinancial Consultants in Markham, Ont. “I don’t see the clients winning.”

Furthermore, Lee suspects that many clients would never cash in on the benefits under a policy with such a long waiting period. She notes that older clients in particular – who comprise the target market for this product – often don’t survive very long once they become dependent on care. “A lot of them don’t even survive 30 days,” Lee says.

Fryer says SRHA is designed to deal with permanent conditions later in life that create a need for ongoing care rather than shorter, recurring claims that can arise under traditional LTC policies. “It’s really a solution,” he says, “for those who think they can manage through a need for care, and the cost of that care later in life, but want the added cushion and protection against a catastrophic long-term care need that is higher or lasts longer than planned.”

In contrast, the waiting period for Desjardins’ LTC Advance is on par with most traditional LTC policies – 90 days. However, the maximum monthly benefit available under these policies is considerably lower, at $2,500, thus falling short of the total care-related costs that many Canadians will face.

Despite the limitations, these new products present a new option for clients – particularly those who haven’t been able to qualify for coverage in the past.

“It’s better to have some protection than no protection,” says Henderson. “It offers more choice for advisors and clients.”

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