LTCI hits 50 percent market penetration mark

By Jesse Slome

American Association for Long-Term Care Insurance


November marks the 10th anniversary of national Long Term Care Awareness Month, an event established in 2001 by the American Association for Long Term Care Insurance to support insurance professionals' efforts to heighten awareness for the importance of planning.

Awareness Month is a most appropriate time to celebrate the successful achievement of a historic mark: reaching the 50 percent penetration mark.

"Wait a minute," you say. "Most people will tell you that only a small percentage of Americans have long term care insurance. Some will even go so far to call long term care insurance a failed effort. Is this merely hype from an industry trade group or some slight of hand?"

The truth is, no one has correctly positioned the realistic marketplace for long term care insurance. Our calculations put the potential number of buyers at 15 million. Some say it could be as large as 20 million, but we prefer to err on the conservative side.

True, there are currently 310 million Americans. Some 28 percent are under age 19. Let's assume these definitely are not potential prospects. Another 27 percent are between ages 20 and 39, and while a few individuals within this age group have long term care insurance, it's a pretty safe bet that the majority are not viable prospects. Finally, 9 percent of the population is age 70 or older. While some are indeed prospects, health problems knock a significant number out of the equation.

That leaves 36 percent of the population, or about 112 million potential prospects, who are between the ages of 40 and 69. Some would say people don't become real prospects until their 50s, and about 47 million of this segment are between 40 and 49. Let's leave 50 percent of them in the mix. So, do we now have 88 million viable prospects? Not really.

That's because long term care insurance is really only available to those who can 1) health qualify, 2) afford to pay the cost, 3) have savings they'd like to protect and 4) are planners. We all know someone earning a more-than-adequate salary who spends more than they earn and has little if any saved for their future retirement or health needs.

Health conditions knock out a significant number of the remaining market. Some 5 percent of Americans between ages 45 and 75 have limitations with activities of daily living (ADLs), and 9 percent have limitations with instrumental activities of daily living (IADLs). The 40 to 59 age band has the highest percentage of obese individuals. Approximately 40 percent of men ages 40 to 59 are obese, compared with 28.1 percent of those ages 20 to 39, and 32.2 percent of those ages 60 years and older. Among women, 41.1 percent of those ages 40 to 59 were obese, whereas 30.5 percent of younger women ages 20 to 39 were obese.

That brings us to income: About 18 percent of U.S. families in this age category are below the defined poverty level (2009: less than $22,050 for a family of four). Data from the Employee Benefit Research Institute (EBRI) reports that between 23 percent and 25 percent are at 200 percent of the official poverty rate (still unable to afford long term care insurance).

Finally, that brings us to those who are unemployed and those not favorably inclined toward planning. You can easily reach the conclusion that the viable market for long term care insurance is about 15 million.

What conclusions can we draw from this? First, success! The private long term care insurance industry has successfully penetrated 50 percent of the potential marketplace. Over 10 million policies have been written and about 8 million are currently in-force (the rest have lapsed or died).

Second, insurance professionals should stop wasting time marketing to those who can't or won't buy. Focus on the remaining 50 percent of the market and you'll have success. Happy Long Term Care Awareness Month!