Critical Illness And/Or LTC: A Possible Solution?

The other concern is that many CIs reduce their benefit by 50% between the ages of 65-70 (the retirement years). Though many CIs are sold with full portability and lifetime coverage, this benefit reduction diminishes the potential value of the lump-sum payment during retirement, when CI events are more likely to occur.

If current CIs are offered with lifetime coverage and portability, lack of inflation protection, along with a benefit reduction at retirement age, lessens the value and impact of the CI’s most important feature: its discretionary lump-sum payment.

Both CI and LTC represent asset protection products. The benefit trigger for CI insurance is upon diagnosis of the specified CI conditions, whereas the benefit triggers for LTC insurance are ADLs and cognitive impairment.

From a consumer’s perspective, the question becomes, “Which product is better?”

Market surveys from the National Association for Critical Illness Insurance indicate that CI buyers are usually under age 55. However, the majority of LTC buyers are over 55. Yet the LTC industry continues to promote and encourage younger people to purchase LTC because the premiums are lower and the underwriting requirements are more likely to be met. As a result, CI and LTC currently seem to be competing for the same consumer: the pre-retirement population.

The federal and state governments provide incentives for the purchase of LTC insurance, such as tax incentives, the opportunity to pay LTC premiums with HSA monies, and asset protection from Medicaid spend-down requirements. Even so, LTC sales are not growing and are even declining. Meanwhile, CI sales grew modestly in 2004 and 2005, according to NACII research, and CI premium held steady at approximately $130 million.

Both products provide asset protection for pre- and post-retirement. Pigeonholing CI as a pre-retirement product and LTC as a post-retirement product or encouraging consumers to purchase both products is not an affordable strategy.

A possible solution: Develop something comparable to lifecycle mutual funds that enable pre-retirees to make contributions to help fund their retirement. Since the asset allocation is done automatically, based on the age, this alleviates consumer concerns over deciding the appropriate allocation.

Perhaps the insurance industry could use this as a model for an integrated CI/LTC. Here, proper allocation of CI and LTC benefits would change as a person nears retirement age. This integrated product could also contain an inflation protection factor to maintain adequate benefits for both pre- and post-retirement years.

This is an era of consumer empowerment. Decision making has shifted from employer to employee in selecting the best insurance product(s) for one’s healthcare and retirement needs. The industry’s challenge will be to design an affordable, integrated CI/LTC product as a possible solution for these needs.