LTCI options for uninsurable prospects
Although the climate is beginning to change for the positive, today’s long term care insurance (LTCI) marketplace is tough. It’s hard enough to even get people to the table to discuss the importance of this vital coverage. And when you do, it typically requires at least one very lengthy meeting (more likely two or three) to explain the nuances of the policy language and the variables offered. If you are lucky, you will get a few out of every 10 or so prospects to say “yes,” and then the process begins. Long applications, medical records, phone interviews, possible face-to-face assessments and then –typically four to six weeks later — you hope to get an approval so that you can place the policy and get a commission check.
Don’t get me wrong, selling LTCI is an emotionally rewarding experience and can be a financially lucrative business. But we all know that when we hear the word “decline” it is never a happy moment. In such cases, we need to be armed with some good responses to give to our uninsurable prospects. The following are four possible options for such individuals.
1) Sell a cash benefit LTCI policy to the insurable partner.
- In order to do this, the uninsurable prospect must obviously have an insurable partner. But, according to the American Association for Long Term Care Insurance (AALTCI) 2010 Sourcebook for Long Term Care Insurance Information, 78 percent of LTCI purchasers in 2009 had a partner. Therefore, it is obviously a very common situation, meaning the marketplace is very different from what it was 15 to 20 years ago. The idea here is that since cash policies can pay for anything, when the insurable partner goes on claim in the future, the benefits can be used for both of them. We can also assume that the healthy partner may be able to take care of the unhealthy partner until the time comes when they both need care. The only trick here is to make sure that the cash benefit sold is higher than average, so that it can handle the needs of two individuals, when necessary,
2) Add an uninsurable partner rider to the policy of the healthy individual.
- Once again, this requires that there is an insurable partner. Some policies today have a rider that can be added when one of the two partners cannot get through the underwriting process. These riders differ, but generally speaking, there is a benefit that becomes available at claim time for both partners. This is a similar concept to the first example, in that the healthy partner would need to go on claim to access any benefits at all, but will likely be able to take care of the unhealthy partner until they both need care. One of the better riders in the industry being offered today will give the uninsurable partner 60 percent of the policy benefit in cash to use as they see fit, in addition to reimbursing 100 percent of the benefit to the insured person in a claim situation. It is usually an expensive rider, but don’t forget that if the unhealthy person would have been able to buy his/her own policy to begin with, they would have been spending a whole lot more premium to get utilize the policy.
3) Sell an annuity/LTCI-linked benefit product.
- One of the best things about these types of policies is the fact that the underwriting tends to be extremely liberal. Although it may not be exactly what your client is looking for, it can help to solve part of the problem — especially if this is a single person and there is no spouse or partner available to utilize the first two options. With these annuity/long term care combo plans, clients are able to access cash value for qualifying LTCI expenses with a credited interest rate for these funds. They can offer an attractive alternative for people who would have chosen to self fund for the risk of long term care, as well. In most cases, clients have very few health questions to answer, there are rarely any exams, and the whole underwriting process can be completed within a few days of when the application arrives at the insurance company. In addition, these types of plans are positioned perfectly to take advantage of the new guidelines set forth as part of the Pension Protection Act. Beginning in January 2010, people with non-qualified annuities now have an opportunity to use them in a tax advantaged manner for qualifying long term care expenses.
4) Discuss the possibility of the benefit they may be able to access through the new CLASS Provisions of health care reform.
- We are still a year or two out from this becoming functionally available as an option for people, but the new law states that most working Americans ages 18 and older will be able to buy into a plan that will give them a benefit of $50 per day on average that will grow with inflation linked to the CPI on a guarantee issue basis after paying in a premium for at least five years. This is obviously not an adequate benefit when compared to the cost of care today in America, but something is better than nothing. Although there are quite a few downsides to this, and most people will be much better off buying traditional LTCI coverage from the private marketplace for a variety of reasons, it is still something that we can talk to our uninsurable prospects about that we did not have access to in the past.
Please note that these are not perfect solutions for anyone, but they are responses to the person who just cannot get this important insurance coverage any other way. Also, sometimes just making these opportunities available will help you as the advisor save the sale on the insurable partner, simply because you had an answer for the unhealthy individual. Don’t forget, we are here to offer solutions of all kinds to people in many different situations. Helping our clients to the best of our ability and staying profitable at the same time is what a large percentage of us strive for on a daily basis.