LTC Insurance Buyers vs. Non-Buyers: Long-term Study Reveals Insights

May 10, 2012
Parsippany, NJ

Modern long term care insurance (LTCI), which has only been available for about 20 years, is now at the point that it is considered a core product by many advisors. What are the primary differences between those people who decide to purchase long term care insurance and those who do not?

In prior articles I've discussed what LTCI buyers are purchasing. Now, an report entitled "Who Buys Long-Term Care Insurance in 2010 - 2011? A Twenty-Year Study of Buyers and Non-Buyers (in the Individual Market)," released by America's Health Insurance Plans (AHIP) in March 2012, answers the questions: WHO is buying -- and WHY. The report takes a look at how the buyer profile and motivation have changed over the last 20 years. In addition, the article analyzes nonbuyers. As defined by the study, a nonbuyer is "an individual who has been approached by an agent or who has attended a sales seminar and has been presented with the details of a policy or policies, but who has ultimately chosen not to buy a policy."

Here are the report's findings that I found most interesting, and want to share with you:

Initial Nonbuyers May Purchase in Future
More than half (53%) of nonbuyers describe themselves as "undecided as to whether they will buy LTCI in the future." This statistic is interesting in many ways. It may indicate that people are looking for additional information, or that they didn't click with the agent who provided them information. In contrast to the 32% of nonbuyers who say they have decided not to buy at all, this statistic suggests that most nonbuyers haven't closed the door on the purchase of LTCI, and may revisit their decision.

Purchase Age of LTCI has Plummeted
While 40% of LTCI buyers were over age 70 in 2000, in 2010 that number had dropped to 8%. I believe that this may be due to one or more of these factors:

1) As more people become aware of the need for LTC insurance, they are choosing to purchase it at younger ages, when it is more affordable.

2) Concern about future insurability. The report discloses that 7% of purchasers were concerned that health declines might make the purchase impossible in the future (Fig. 9, Report page 31).

3) Insurer repricing has made purchasing new policies more expensive than the same policy was in 2000. The industry-wide pricing was done in response to actual claims experience, lower-than-anticipated interest rates, and other unfavorable trends. Common sense tells us that the repricing may have made the coverage unaffordable for those over age 70 who had not yet purchased a policy. The average age of purchase in 2010 was 59; in 2005 it was 61, and in 2000, it was 65.

Although 45% of respondents said they would be likely to purchase LTCI if their state participated in an LTCI Partnership Program, only 25% knew if their state participated.
75% of the general population age 50+ does not know if their state participates in an LTCI Partnership Program. The vast majority of states DO participate in LTCI Partnership (notable exceptions include Massachusetts, Vermont and Illinois). The Partnership for Long-Term Care is a unique insurance program developed in the 1980s. It allows states to encourage the purchase of private LTC insurance by offering easier access to Medicaid if they need additional LTC beyond what their Partnership Policy provides. The Deficit Reduction Act (DRA) of 2005 allowed for the expansion of the Partnership Program beyond the 4 initial states to any interested state.

Today's LTCI Purchasers are more likely to have higher income, and to be college educated
While only 47% of LTCI buyers in 2000 were college educated, in 2010 that number had jumped to 71%. Median income also jumped, from $42,500 in 2000, to $87,500 in 2010. I imagine that this is at least partially explained by the fact that 40% of buyers in 2000 were over age 70, and not earning income. In addition, college-educated people do tend to have higher earnings.

In general, it can be said that today's purchaser is younger, more educated, and has a higher income than buyers in past years.