The Essential Guide to LTCI
With health-care costs rising and the senior population growing, there is probably no better time to be selling long-term care insurance. But how to get your clients to buy? And what products are best suited for them?
TRENDS TO WATCH
The long-term care insurance industry continues to evolve. Here’s a review of the major developments you need to monitor for your business.
Sales look solid
The first half of 2011 was good for individual LTCI sales and it looks like the momentum will continue in the second half. According to LIMRA, individual long-term care insurance premiums increased 9 percent in the first half of this year (compared to the first half of 2010) to reach $268 million. Nearly 115,000 Americans purchased individual LTCI from participating carriers in the first six months of 2011, 2 percent more buyers than the same period of 2010. In contrast, group LTCI premiums declined 32 percent in the first half of 2011 (compared to the first half of last year, when they were up 35 percent) to reach $63 billion. However, there was a 1 percent increase in the number of lives covered in the group LTCI plans.
Linked policy offerings on the rise
Hybrids showed strong sales growth in 2010, albeit off an admittedly modest sales base in 2009. Yet their momentum is unmistakable. Carl Friedrich, a consulting actuary and principal with Milliman in Chicago, says the number of linked- or hybrid policy variations and insurers offering these products are growing. Among the developments: the expanded use of whole life instead of universal life as the underlying chassis for the life products.
Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI), notes that Sun Life has entered the hybrid market and Pacific Life is about to follow suit. Although hybrids target a specific market—older, more affluent clients—Slome notes that the presence of more insurers and producers has a direct relationship to increased sales and that bodes well for hybrid sales.
Additional distribution channels developing
Banks’ and wirehouses’ financial advisors are becoming more active in linked product sales, Friedrich notes. Those advisors, especially those operating under a financial planning or wealth management model, are frequently more familiar with their clients’ overall finances than insurance-only producers. That additional insight translates into the recognition of sales opportunities that take advantage of the life and annuity hybrids’ multiple benefits.
The Web’s role is growing
The Web and Google are dramatically changing the world of LTCI, Slome says. Prospective buyers often do extensive online research about the product and many of them seek to learn about LTCI agents online as well. Although consumers are flocking to the Web, producers’ responses vary. Some producers develop most of their prospects online and use technology for long-distance sales.
Other producers, however, have a weak online presence or no presence at all. They have sufficient new business arriving through traditional methods to keep them busy so they don’t include the Web or social media in their marketing mix. That approach is risky, says Slome: “Insurance agents, insurance marketing organizations and insurance companies who recognize and adapt to the changing marketplace are going to experience greater success. Those who don’t are going to find themselves as quickly out of date as Borders found itself in the bookselling business.”
EXPAND SALES WITH LINKED PRODUCTS
If your sales of new long-term care insurance (LTCI) policies have peaked, the hybrid life/LTCI and annuity/LTCI products could be the solution.
Target the right audience
The “2011 Sourcebook for Long-Term Care Information” from the American Association for Long-Term Care Insurance (AALTCI) highlights a distinct profile for hybrid buyers in 2010: More than half of the life and annuity buyers, both male and female, were age 65 or older. These buyers are investing substantial amounts in the contracts: over 90 percent of the life premiums and 70 percent of the annuity premiums were for $50,000 or more. These stats show the hybrid market is older and affluent. If you’ve been targeting younger prospects, you might need to refocus your marketing efforts to reach potential hybrid buyers.
Watch the suitability requirements
Hybrids aren’t financial Swiss Army knives; they’re versatile but that doesn’t mean they work in every situation. If you’re considering an annuity, for example, will the buyer have sufficient remaining liquidity after buying the contract? Will the annuity’s tax deferral actually benefit the client? Ideally, a buyer will be in a high tax bracket during the deferral period and a lower bracket during withdrawals. For life-hybrids, does or will the buyer need the life insurance benefit? Depending on the hybrid’s features and benefits and the client’s profile, some clients will be better off with a traditional LTCI policy.
Develop a review process
You can avoid suitability problems and build a stronger sales presentation by adopting a thorough product review process to help clients determine which product meets their needs. Stephen Lovell, CFP, is branch manager with LPL in Walnut Creek, Calif. and one of LPL’s top producers for hybrid contracts. He assesses several factors with clients when he’s evaluating LTCI-hybrids.
- Understanding of LTCI. In Lovell’s experience, clients who are familiar with LTCI are more likely to buy traditional coverage.
- Insurability and insurance need. Annuity hybrids with less stringent underwriting can provide coverage for clients who don’t qualify for traditional LTCI policies. In cases where the client has a strong need for life insurance, says Lovell, life hybrids can work well.
- Source of funds. Clients with excess cash flow find it easier to cover traditional LTCI premiums. Those clients who are “income-sensitive” but have other assets they can reallocate are better candidates for hybrids.
- Desired coverage of anticipated LTC costs. Which product provides the most efficient way to reach the desired LTCI coverage level?
Get creative and go beyond the basics
Hybrids have tremendous potential as an estate planning and wealth transfer tool for wealthy clients, including those who could self-fund LTC expenses. For example, they can be used with irrevocable trusts to remove contract values, life insurance proceeds and the LTC benefit from the insured’s estate. Another possibility is for a family member, a parent, for instance, to use his or her annual gift tax exclusion to fund a hybrid for another family member.
Q&A WITH DOCTOR MARION
“Long-term care insurance is not an option, it should be mandatory.” Yes, Marion Somers, Ph.D., otherwise known as Doctor Marion, is that passionate about long-term care insurance.
Professionally, Marion Somers, Ph.D., has been a geriatric care manager for 40 years, starting at a time when there wasn’t an actual job description for a geriatric care manager. “I would say to people, it’s like hiring a daughter,” she says.
Yet Somers, 71, asserts her work in the field began decades prior to that, at the age of nine. Growing up in Spanish Harlem, in a five-story walk-up along 126th Street in Manhattan, she would routinely run after-school errands for the elderly residents in the building, bringing them perishable groceries, like milk, bread and butter. (“In the days when people ate butter,” she recalls.) So, in a sense, Doctor Marion, as she is known, says she has “been in the field my whole life.”
Today, she wants to help more people—seniors, their families and even financial planners—get on the LTCI bandwagon. This summer, she crisscrossed the country in 1960s-era converted Greyhound bus on behalf of the 3in4 Need More Campaign to raise awareness of long-term care insurance, speaking to local media and even stopping by the GOP Straw Poll in Iowa to question Republican candidates for president about elder care issues. She has also authored a book, “Elder Care Made Easier: Doctor Marion’s 10 Steps to Help You Care for an Aging Loved One.”
Recently, Senior Market Advisor caught up with Doctor Marion, who is based in Gardena, Calif., to get her thoughts on the importance of LTCI. What she has to say is essential guidance for not only seniors and their families, but financial advisors as well.
SMA: Why are people reluctant to buy LTCI?
Marion Somers: One, they don’t understand the product and in fact many people don’t even know the product exists. So we are starting with profound ignorance [that] there is a safety net or a potential safety net. But even more than that, people don’t understand the costs involved with long-term health-care issues. They haven’t a clue. I try to be very gentle. I say, find out what it costs in your immediate neighborhood. What does it cost to have an aide come in? What does it cost to put someone in an assisted-living home or a nursing facility? What does it cost to retrofit your home to have someone move into your house?
They are also under the misunderstanding that the insurance they may have from their company or Medicare or Medicaid or Social Security or some governmental entity is going to come to their rescue. That is beyond wishful thinking. That is just not the reality.
“People just don’t understand the benefits of the product and they don’t understand that there is a lot of negotiation that goes into a product.”
SMA: How can advisors educate clients about LTCI?
Somers: It comes back to an informed consumer is always your best consumer. So what are the costs involved? What is the health history of your family? What are the potentials that are going to hit you as you get older?
Again, it’s not a scarce tactic. It’s a matter of let’s look at the realities. If your parents died at the age of 70, and they had health issues for the last 15 years of their life, then be prepared emotionally, psychologically and financially and the way to do that is with long-term care insurance.
People just don’t understand the benefits of the product and they don’t understand that there is a lot of negotiation that goes into a product.
If you can only do X [amount of dollars], because that is the only amount of money you feel you can put to this product, then negotiate, get the best you can for the money you feel your budget will stretch. But people don’t understand it’s negotiable. Or that there may be ways of getting a discount, like have you gone to your HR department to see if you can get it at a group rate? Or maybe spouses can get it at a cheaper price if they both get a policy at the same time.
SMA: You bring up price objections. How can advisors overcome those concerns?
Somers: It’s more expensive if you get sick and can’t pay your bills. What is the impact on your family if you are not able to bring in whatever your income is? How will they be impacted? Will they lose the house, the roof over their heads? To me, the most loving thing in the world to do is to get long-term care insurance, not just for yourself, but [for] your family.
SMA: You also mention reverse mortgages as a way to pay for LTC. Is that a good option for many people?
Somers: You have to do your homework. Not all reverse mortgage companies have been around for a long time and you want somebody with a track record, that has been around 10, 20 years. So understand what you are getting involved with. Some people think the bank owns my home or the mortgage company now owns the home. That’s not the case. You retain the title of that property until the day you die. The money you have withdrawn in the reverse mortgage is your equity in your home. That money is not taxed, which is a very important factor. It doesn’t interfere with your Social Security or Medicare. Many people have built up substantial equity in their home and it can carry them through until the end of their lives. Again, they just don’t understand the product. It’s very simple and straightforward. And the government has an agency that before you get involved with the reverse mortgage will re-explain everything to you so you know what you are getting involved with. It’s impartial, so it has nothing to do with the reverse mortgage people. It’s a guarantee that people understand what they are getting involved with.
SMA: Social Security and Medicare are under siege in Washington, D.C. while at the same time, the senior population is growing. What’s the impact?
Somers: It’s not only a problem in this country, growth patterns [are] changing around the world. So our country is not alone in facing the fact we are going to have a senior population [larger than] the younger generation who are supposedly going to take care of the senior population. No younger generation has ever had to deal with the fact that there are going to be more elderly people than there are young people to support them. It’s a phenomenon that we have never had to face in this world. It’s beautiful that people are living longer, and by and large they are living healthier, but there are consequences to that. If people do not take care of their own health, then our younger generation is going to be suffering in ways that I don’t think we can even measure.
“To me, the most loving thing in the world to do is to get long-term care insurance, not just for yourself, but for your family.”
SMA: How does LTCI play into that?
Somers: I think when people think in terms of how can I best protect myself and my family, for me, long-term care insurance is not an option, it should be mandatory. We should get tax incentives so that no matter what your economic status is, you can get some form of long-term care insurance. I’m trying to get the younger generation to start thinking in terms of LTCI for themselves. If somebody is 30 or 40 years old, yes, that’s an age when they feel they are invincible and nothing is ever going to happen to them. But when you are younger and you can afford to get the insurance, you are protecting yourself, your loved ones, and you are going to get a cheaper rate because you are healthier and younger. You may be paying into it longer, but your protection is also longer.
SMA: How does LTCI fit into an overall retirement plan?
Somers: I think it has to be right there with a will, health-care proxy, durable power of attorney, having a trust. Our financial planners don’t understand it. I’ve spoken to financial planners and I’m taken aback at their ignorance. They don’t bring it up with their clients, or let people know about the reverse mortgage. Financial advisors need to be trained that this is a very viable [product] for their clients. I feel they are not doing their job sufficiently if they are not at least advising people that this is an option and the earlier you get involved with this option the longer your protection period is going to be.
SMA: Why don’t many financial planners know about it?
Somers: I think it’s an industry lack of disseminating the information sufficiently. I’ve had LTCI for 12 years now. As soon as I found about it, I thought, my God, how did I not know about this? I don’t sell LTCI, but I drumbeat it because I feel passionately that it is a must. People at least have to know about it. When they know about it through education, then at least they have the option of making the choice of going that route or not. But if they don’t even know the product exists, then they are in ignorance.
SMA: There are many different LTCI products.
Somers: It can get very complicated. But if people don’t even know to seek out the information, then they are in total ignorance. There is an infinite variety of products out there and you can get lost in the maze. But [people need the] basic information that there is a product out there that can help. Guaranteed, the government is not going to be there when you hit any of these needs. Whatever we have now in the way of resources from the government are going to be skimmed down.
That’s why I take these trips. I’ve done nine weeks across the country. I spoke to the politicians in Iowa, the Republicans, and the candidates don’t have any answers for my questions. They are not aware of the total impact of what is going to happen to our country. How do we deal with the silver tsunami that is heading this way, not only here, but around the world?