Long Term Care Insurance: A Gamble For Consumers, A Sure Bet For Agents

Second of two parts Part One

When long term care insurance companies explain why their premiums are so high and why they need rate increases, they give all kinds of economic factors. One they always neglect to mention is the amount of money they pay insurance agents to sell you your policy.

On average, long term care insurers pay 80 percent of the first year premium to the insurance agent. Then there are usually payments in future years.

That number comes from the Connecticut Insurance Department, which I asked to provide the commissions paid for individual policies, that are included in regulatory filings.

The Insurance Department sent me three typical filings:

MassMutual had the lowest initial commission for agents of 50 percent of the first year premium but then it would pay six percent of the premiums through the next 9 years and then one percent every year starting in year 11.

John Hancock pays 98.6 percent commission of first-year premium; 14.6 percent to 9.1 percent for years 2-10; 3.6 percent in years 11 and beyond.

And Genworth Life pays 150 percent commission of first-year premium; 8.5 percent for all renewal years after that.

Now there is no question that insurance agents earn their commissions selling long term care policies. They are difficult to understand and few people will make the long term commitment to purchase the policies.

But the natural question that arises is how can insurance companies make money on these policies when so much of the premium goes out as commissions?

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23 Comments on "Long Term Care Insurance: A Gamble For Consumers, A Sure Bet For Agents"

  1. George:

    You perspective bring up topics to explain.

    1. The Connecticut department of Insurance comments on what agents are paid for commissions for LTC plans. I wonder how it is calculated? I also wonder whether it makes us out as greedy people.

    2. LTC is not a commodity or understood by people and companies as it is with Home Owners, Life, Health, and Auto Insurance, or Umbrella Policies.

    3. I agree that marketing money and our time to be licensed, knowledgable, and have the tools to work with individuals and companies about long-term care plans adds to the cost of the policies.

    4. Public awareness and understanding of LTC is just beginning to be understood by the public. Why? Caregiving and Caregiving planning is not an item which people want to think about or plan.

    5. LTC plans Are Not Complicated if explained competently and with clarity. Surgery, Dentistry, Law, Architecture, Engineering is a learned subject. My point is that when explained people consult with these knowledge people as people consult with me about long-term care insurance. They do not need or want to know the inner workings of surgery, law, or accounting. They want to know why and for what reason they should have an estate plan surgery, or own long-term care insurance.

    6. This is what I and others do every day to help people to avoid financial, emotional, and physical melt-down. I often suggest to people who think they should not own a plan — ask around and you are no more then 1 or 2 people away from someone who is in or in a caregiving situation. Ask them about their experience and then you will comprehend why we need to have a conversation.

    7. If I do what I do correctly, people and companies do not buy from me, they own it because they realize that it is the appropriate planning to do just as you have an estate plan, a health plan, or any plan which will provide services and benefits when you need them.

    8. We talk about the Free-Market concept. Thinking about and owning long-term care insurance is a personal responsibility to you and your family. Even if you do not want to own it, ask yourself: “how will my family, my friends, and my Money be effected if I am in a caregiving situation.”

    9. The affluent own long-term care insurance or they should. Why? Even if your cash flow or assets exceed $500K and up……smart people spend a small fraction of their income or return on investment income to own a play which transfer the risk.

    10. Whether you own a plan or not — have a plan or assets set aside in case you unexpectedly or in the course of time need caregiving services.

    Raymond Lavine

  2. Revised


    You should do more research before you write Part 2.

    While the insurance carrier may pay out as much an the equivalent of 80 percent of first year premium to a marketing arm to sell their insurance, the agent in the field makes far less than that on average. The marketing arm must generate leads, run a back office, provide administrative support and tracking for these agents. The carrier provides the product at wholesale and the marketing arm retails the product.

    The carrier actually goes in the hole, so to speak, every time a sale is made. In addition to paying the marketing entity the carrier is required to set aside even more money in reserves to pay future claims. The reserves can not be touched or used until the policyholder dies, goes on claims or cancels their policy. One major carrier has over 16 Billion dollars in reserves just to pay long term claims. Based on the claims they will have to pay this is necessary.

    Carrier after carrier has withdrawn from the business because of the difficulty of making money covering the cost of long term care. The reason has little to do with the commissions that are paid agents. The carriers, after the first year keep around 85 percent of the future annual premiums to catch up and eventually make a profit they hope.

    I authored the book, Long-term Care Insurance…The Complete Guide. I have helped over a thousand people get long term care insurance. I received 30 percent first year commission on the vast majority of the sales that I made. I make 5% each year each following year until the client goes on claim, dies or cancels their policies. The facts are that agents who focus on long term care insurance (only about 3000) do not make close to what insurance agents make who sell annuities and life insurance. Most of them do it because they believe in what they do and hope to make a living at it.

    For Part 2 I would respectively suggest you talk to long term care insurance specialist and find out what they actually make and then focus on telling your readers the consequences of having and extended long term care event and having to fund the cost out of pocket.

    My Dad died of Alzheimer’s and was on claim for 3 years. What the salesman got paid was of no consequence compared to what the insurance paid out to see to it that he got quality care and was able to stay home with Mom for a longer period of time and maintain dignity staying off the Medicaid rolls.

    If you would like to talk to some LTC Insurance specialist about what they make I have eighty 1st year agents you can talk to and another couple of hundred who have been in the business for over a year I can refer you to.

    Harry Crosby
    Author of “Long Term Care Insurance…The Complete Guide.”

    • My wife and I took out a policy with Genworth 2 years ago, which we pay into for ten years and are then finished. We are 60 and we pay 17,700 for ten years for the two of us.
      Our policy benefit us 7700 per month for a total of eight years (four for each of us).

      My new financial advisors are of the opinion that I would do better to invest the 17,700 for the next ten-15 years and self insure rather than have to plead with a LTCI company to approve my need for home help based on the inability to perform 2 ADL’s and have no cash value.
      I must admit they have a point, if I stay healthy for ten or more years,

      The LTCI policy will pay out a maximum of 739,000 if all eight years of coverage are utilized between myself and my spouse. If I invest 17,700 each year for ten to 15 years or more, I might have close to half a million in the bank which I could enjoy if it turns out we don’t require LTCI or which I could use to self insure LTCI. It is not highly likely that both myself and my spouse will each require a full four years of LTCI.

      i’m feeling a little bit like a made a poor choice two years ago. What are your thoughts?


      • If you invest $17,700 each year for 10 years at 5% (guaranteed) growth, you will have $262,592 before state and federal taxes and investment fees. 15 years at 5% you will have $437,835 again before taxes. That assumes either you or your wife never need care, which you both have about a 70% chance of needing according to the U.S. Dept of Health and Human Services.

  3. I have been asked time and time again to purchase long term insurance by my agent. My question to him was is it transferable. If I purchase it in Connecticut can it go with me to Florida, Texas or somewhere else if I move out of Connecticut? He said no. Well then why would I buy a policy that makes me stay in CT when I’m not planning on it. My in-laws bought a policy recently and I asked them it they knew it was transferable out of the state they lived in. They turned white and said they didn’t know to ask that question. When they got back to me they found out it was only good in the state they lived in. Now they are not happy with the money they spent.

    • David Gerrol | March 25, 2012 at 11:37 am |

      Beth –
      Your agent is totally incorrect. Your policy, if not part of the Connecticut Partnership for Long-Term Care program is absolutely portable throughout the United States. With some carriers, you may even use your long-term care policies overseas as well. With the Connecticut Partnership, your benefits are transferrable to 40+ other states (including Florida)because of the reciprocity agreements among these states. If you have further questions, please contact me and I will be glad to answer them for you.

  4. Metlife was one of two companies sanctioned by the State to come into State agencies as scheduled by HR directors to sell long term care to State employees. Some years earlier Unum was the one that came in. Metlife was supposed to be easy because the premiums were done by payroll or pension deduction but that then changed and we are billed directly. I am wondering why and how some companies come in to meet with employees on work time and not others,

  5. Having been on both sides of insurance (selling & purchasing) Let’s be honest with ourselfs, Insurance as a whole, regardless if it’s home, auto, health care, long term etc etc is legalized gambling.

    The policy holder is the “player” and the insurance companies are the “house”

    We the players/policy holders are placing a bet with the insurance compaines/house against something going wrong, that we may not be able to afford should it.

    As with any wager of a bet, the house always wins in the long run.

    So the question shouldnt be why are rates increasing, it should be how much am I willing to bet on my needs.

  6. Mark Elliston | March 25, 2012 at 5:45 pm |

    RE: CT WATCHDOG: Long Term Care Insurance: A Gamble For Consumers, A Sure Bet For Agents

    The information he/she cherry picked from the DOI is misleading.

    “On average, long term care insurers pay 80 percent of the first year premium to the insurance agent.”

    I’ve been providing clients asset protection with long term care insurance for over a decade and I have YET to make 80% commission, let along 70% or even 60%.

    Mark Elliston

    • George Gombossy | March 25, 2012 at 5:48 pm |

      well Mark: that “cherry picked” information came from the ct insurance department: I will even include the actual email:
      From: Tommelleo, Donna M [mailto:Donna.Tommelleo@ct.gov]
      Sent: Monday, March 19, 2012 11:43 AM
      To: George@usawatchdog.me
      Subject: RE: long-term care

      George…we took a look at new products being offered on the market in 2011 and came up with the following 3 examples:

      1) 150 percent commission of first-year premium; 8.5 percent for all renewal years after that
      2) 98.6 percent commission of first-year premium; 14.6 percent to 9.1 percent for years 2-10; 3.6 percent in years 11 and beyond
      3) 50 percent commission of first-year premium; 6 percent for years 2-10; 1 percent in years 11 and beyond

  7. Stephen Lambert | March 27, 2012 at 7:58 am |

    What I don’t understand, why should the insurance company be able to raise the rate at all? this is not like health insurance where my claims against the policy may skyrocket. I’m purchasing for example: 150.00 per day for a maximum of 3 years, with no inflation clause. The company at the time of contract signing sets the premium at X. In my opinion, they should not be able to increase my premium, period.

    • “I’m purchasing for example: 150.00 per day for a maximum of 3 years, with no inflation clause. The company … should not be able to increase my premium, period.”
      I hope you are not very young, because in 15 years, you will not have even half the funds needed for the increasing cost of LTC then. The issue is not inflation in any case. The odds you will use such a policy are very high–certainly more than 50-50.
      I have a client who was on claim w/ osteoporosis breaks in her spine. She was receiving help dressing and bathing. Today, she can drive again, but she cannot understand why there could be an issue w/ her LTCi not paying for her 4x a month housekeeper. (She has no other LTC expenses, and certainly does not need help bathing!) It was hard to help her understand why a health insurance would not continue to pay for her help at home. The benefit of a “maid” is very nice for someone living alone. Once policyholders see how convenient it is to have LTCi pay for the help around the house, most, like her, will want to stay on claim. When LTC insurance only paid for nursing home LTC services, fewer folks were excited to use it—current included lifestyle benefits make it much more likely a higher percentage of policyholders will file claims. I have paid premiums 15 yrs @ $1400 a year. In 105 days of care, I will have recouped all premiums I ever paid. Inflation on benefits is good for the consumer, hard economically for the carrier.

  8. Through the State Comptroller’s Office, Long-Term Care Insurance is currently being marketed to state employees, through Transamerica Life Insurance Company, of Cedar Rapids, IA. This is in the Connecticut Partnership. It mentions that this is a ‘one-time’ open enrollment, with ‘relaxed underwriting’. There is a discount for state employees and family members, dollar-for-dollar asset protection, lower priced inflation option, payroll/pension deduction, premium increases only on a class-wide basis, accepts ages 18 through 79, and uses scary words such as ‘exclusions’, ‘limitations, ‘elimination periods’ and ‘reductions of benefits’. Call 800-582-2889 or socltc@armltc.com.

  9. This was a poorly researched article. Once again, media is protected from mistakes and FULL disclosure. I wish they were held liable just as we are. LTC pays out anywhere from 40- 55% commissions to agents. Where the other part of the commission goes is through a “trickle-down” concept of different agencies or G.A.’s holding on to it. Remember, we work for commissions, not a comfortable salary whether we produce something or not. So please do not take offense to the commission. Just remember your salary is built into the subscription price of your paper or website, it is just not disclosed.
    LTC can be complicated and takes an experienced agent to know what type of plan to design for the insured. Not everything is “cookie-cutter” like of a plan. As I tell everyone that is interested is LTC, do not shop this like term insurance, for it is a different animal. Better you know now what you are paying for, rather than at claim time.

    • George Gombossy | April 27, 2012 at 3:20 pm |

      Jeff – the commission data came from the Ct Insurance Department. There is no question that LTC policies are hard to sell – especially when premiums are shooting up yearly, half the companies selling them have stopped, and many clients now find out that they can’t afford to continue the higher rates. The fact is that commissions, including annual commissions of up to 10 percent, make it impossible for companies to make money on these policies. Where can insurance firms made 7 percent on their money, much less enough to pay for commissions. If ALL these facts were made known to potential clients 10 years ago, few would have signed up.

      • George,

        Life insurance will pay a typical agent 100-120 percent in the first year. The marketing organizations will get 140-150 percent FYC. Will your next piece argue for consumers to not purchase life insurance?

        Life insurance, long term care insurance and disability insurance are not iPhones. Insurance does not fly off the shelves. Agents and distribution channels are needed. The distribution costs, the marketing costs, and the morbidity/mortality costs are factored into the insurance premium. If the consumer views the premium, and would rather retain the risk it is free to do so.

        Where your piece does a disservice is to the consumer that might have the takeaway that the agent is solely recommending a policy so the agent can make 150 percent of the premium.

        As the previous posters have mentioned, the typical field agent is making nowhere near that percentage.

        • George Gombossy | May 5, 2012 at 9:53 am |

          Jack: you aren’t trying to mislead the public are you? Are you claiming that when you sell TERM life insurance you get 100 to 120 percent of first year premium? Maybe what you are REALLY talking about is WHOLE LIFE which is something I, Consumer Reports, and most consumer advocates are against for most people JUST BECAUSE of the high commissions to agents. Besides, you cannot compare life insurance to LTC insurance. Life is necessary for all, LTC for a few.

          • Jack Lenenberg | May 5, 2012 at 2:48 pm |

            Yes, George, Term Life pays me 120 percent FYC.
            While Life pays me a lot less, maybe 50-70 percent FYC.

            I don’t set the compensation scedules. I just address the needs of my clients. They might need life, LTC or disabilty coverage. It is for my clents to determine, not me. And not you. Feel free to call me anytime to discuss. I do not have any agenda, nor do I ever push product.

  10. Jack Lenenberg | May 5, 2012 at 2:50 pm |

    I meant to type “schedules”. Sorry for typo.

  11. Jack Lenenberg | May 5, 2012 at 2:53 pm |

    And I meant to type Whole Life. I hate this iPhone.

    Anyway, George, I advocate term life too. I am sorry to disappoint you that it pays 120 percent to me. I can’t help that fact.

  12. Jack Lenenberg | May 5, 2012 at 3:29 pm |

    I am just curious how you can be OK with the fact that an agent makes 120 percent on term life because “everyone needs life insurance,” yet have an issue with LTC Insurance because less people need it and less people purchase it?

  13. Clarence Casper | March 18, 2013 at 3:13 pm |

    Update for you, Genworth is increasing their premium on existing CT LTC policies 40% this year with no guarantee for future annual increases, what good is a policy with a 5% increase in value with a 40% increase in premiums?

  14. George, Still waiting for you to answer my question about why you do not feel like bashing life insurance companies and agents that make 120% commission on term life insurance sales… all I have heard is crickets for 2 years….

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