INSURANCE

The 2025 Outlook for Long-Term Care Insurance

By Brian Gordon and Peter Florek

The long-term care insurance (LTCI) industry began in 1974 with companies pricing policies using actuarial models that turned out to be inaccurate. As Americans began living longer, though not necessarily healthier, and long-term care costs escalated, many insurers were forced to exit the business, leaving a markedly changed LTCI landscape.

With our experience, we have weathered these storms, and long-term care planning has never been more important. It’s critical for financial advisors to be aware of trends in the market so they may ask the right questions and help their clients make the best decisions for themselves and their families.

Here are some of the trends that will affect LTCI in 2025.

Changing Buying Patterns

When the industry began 50 years ago, buying behavior was straightforward. For the most part, senior citizens bought traditional standalone policies for themselves. What we see now, however, is much different.

More Hybrid Asset-Based Policies

A traditional standalone LTCI policy covers long-term care costs. A hybrid asset-based LTCI policy combines LTCI with another asset, which is usually a whole life insurance policy or an annuity. These policies have grown in popularity compared to standalone policies because they’re not “use it or lose it.”

If the benefits of a traditional policy aren’t used, it can feel like those premium dollars were wasted. With a hybrid policy, the insured or their beneficiaries will get some of those dollars back in case only some or none of the LTCI part of the policy was used.

Another popular feature is that, depending on the carrier, premiums may be spread out over longer periods (5, 10, 15 years, or more) and still be guaranteed never to increase.

Younger Buyers

It’s more common that clients start considering coverage in their 50s rather than waiting until their 60s or 70s. These clients realize the sooner they buy their policy, the more affordable it is, and underwriting is less likely to be an issue.

More Joint LTCI Policies

A more recent innovation in LTCI is that couples can buy one policy that offers a pool of benefits they can both use for their long-term care needs down the road. This can be a nice alternative to buying two policies separately. Whenever we meet with a couple, we offer this as an option for their consideration.

Seniors Buying LTCI for Their Adult Children

Seniors who have their own LTCI policies like not only that it will pay benefits when needed but more importantly, it communicates to their loved ones how they wish to be cared for. These seniors want their adult children to have the same benefits, so they purchase LTCI for their adult children.

Adult Children Buying LTCI for Their Parents

When senior parents need help, often the default is that the adult children step in. As the parents’ needs increase, the burden on the children can become overwhelming.

Family care providers may experience lost wages, resentment among siblings, and the physical/emotional toll of caregiving. Some adult children realize the position they may be in down the line and choose to purchase LTCI for their parents so they can be care managers versus care providers.

Using Other Assets

IRAs, annuities, and other assets are popular with individuals and families planning for retirement. Some of these assets can be used to fund LTCI and defer taxes beyond year one after a transfer.

Repurposing Qualified IRA Dollars

It’s estimated that 4 in 10 households owned an IRA in 2022, and the most common type is a traditional IRA. Once an IRA owner reaches 59½ years old, qualified withdrawals can begin. Required minimum distributions (RMDs) are required once the IRA owner reaches age 72 (or 73 if they turned 72 after December 31, 2022). All withdrawals incur income taxes at the ordinary rate.

There are options that allow clients to save on taxes, for example, by transferring those dollars into an annuity. As an example: A married couple—he’s 71 and she’s 69—decides to use qualified funds. They begin by transferring $218,860 from his IRA into an annuity. Over the next 10 years, this annuity will fund their life and long-term care coverage, totaling $27,360 annually. The policyholder will pay ordinary income tax on the annuity distribution amount for 10 years, and starting at age 73 this amount can count toward his RMD.

In this example, the life and long-term care policy funded by the annuity provides lifetime benefits, guaranteeing $5,000 per month for each person, with a 3% compound inflation adjustment on the lifetime extension of benefits. If neither individual requires long-term care, the policy provides a death benefit of $120,000 upon the passing of the second policyholder.

Additionally, some clients are using withdrawals to pay LTCI premiums. While there aren’t any tax advantages to this strategy, these clients realize every dollar of premium paid into an LTCI policy buys more than one dollar in benefits, up to a lifetime maximum. That multiplier effect helps assure them their retirement nest egg is going as far as it can.

Cash Value

Many clients use cash value accumulated in older life insurance policies or annuities to help fund their long-term care hybrid policies. With a 1035 transfer, there are no tax consequences on gains when one type of insurance policy is transferred to another type, and any benefits that flow from a qualified LTCI policy are not taxable.

LTCI as an Employee Benefit

Offering group LTCI as an employee benefit is making a comeback post-COVID as the labor market has been so tight and competition for new hires has increased. Even businesses with a handful of employees are looking for new ways to attract and retain talent.

Group LTCI plans have always been available, and recently the industry has launched new hybrid options that increase accessibility in terms of cost and coverage. For example, many group LTCI plans offer guaranteed issue coverage, meaning all eligible employees can enroll regardless of health status, which is particularly beneficial for individuals with pre-existing conditions.

“I Wish I Had Started Sooner”

The two biggest trends affecting LTCI, bigger even than some policy innovations, are:

The need for long-term care assistance is more likely as modern medicine helps keep us alive longer but not necessarily healthier.
As LTCI carriers now have decades of claim experience, medical underwriting has become more restrictive.

Unfortunately, by the time someone has reached their 70s and 80s, it is harder to find coverage due to underwriting restrictions and high premiums. A large majority say they wish they called years ago.

That is why we urge you to address the topic of long-term care planning with your clients regardless of their age. Many younger clients are open to the discussion, having already experienced long-term care issues with their own families.

Long-term care insurance may not be for everyone but long-term care planning is. The LTCI industry is offering more options than ever before, making LTCI more accessible and affordable to individuals and families.

Brian Gordon is president and Peter Florek is vice president of Gordon Associates, with headquarters in suburban Chicago. A long-time supporter of NAPFA, the company was founded by Brian’s father, Murray Gordon, and will observe its 50th anniversary this year. Brian and Peter each have over three decades of experience in LTCI. They can be reached at 800.533.6242.

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