Selling Long-Term Care in Today’s Market
A catastrophic long-term-care event can wipe out even the most carefully planned retirement, if there is no contingency in place. Three experts offer advice on how to help your clients get coverage affordably.
When Prudential Financial said sayonara to the long-term-care insurance market this year (individual in March, group in August), it was the 10th of the top 20 insurers by sales to exit that market in the past fi ve years, according to LIMRA. Couple this exodus with the premium increases that some remaining companies have sought, as well as the repeal of the CLASS Act, the federal government’s attempt to address this issue, and you see a market in major transition.
The fact remains: The need for a financial solution for long-term care has not gone away. More than
10,000 people turn 65 each day, and about 70 percent of them will require some type of long-term-care services during their lifetime, according to the U.S. Department of Health and Human Services. To be successful selling LTCI today, you have to be flexible as companies’ products and solutions morph.
Several experts show you how.
1. Change your mindset—the LTCI policies of yore are no longer a reality.
The days of selling LTCI policies with unlimited benefi ts are over. Not only are they too expensive for most people, says Jesse Slome, executive director of the American Association for Long Term Care Insurance, but also, many companies are no longer offering them.
“Currently three to four of years of coverage is being favored, as it’s far more affordable,” he says, and couples (who buy 70 percent of the policies) can then take advantage of shared care riders. That means the couple buys, say, three years of coverage each, but .one spouse could potentially tap the couple’s full six-year pool of benefi ts. This type of rider usually adds 15 percent to 20 percent to the cost of the policy, Slome adds.
Used this way, it becomes asset protection, says Lisa McAree, CLU, LTCP, an LTCI specialist and senior vice president of Boston-based The Bishop Company, LLC. One spouse might use up the policy benefi t, and the other could then later tap their assets if care were needed.
Keep in mind that selling LTCI doesn’t have to be an all or nothing proposition. Most clients are price conscious, so it becomes a matter of selling them a product that “mitigates the risk,” McAree says. She describes it this way: Perhaps someone needs care in a facility, and it costs $10,000 a month. He has an LTCI policy that covers $5,000 a month. The family won’t be complaining about not having the $10,000; instead, they’ll be grateful for the $5,000 that’s covered.
2. Get creative with company changes and innovations to keep your clients’ coverage growing—but still affordable.
“In the ‘olden days,’ a 5 percent compound inflation rider was the norm; today it’s 3 percent,” says Slome. “It just comes down to simple economics.” Alternatively, McAree might use a CPI indexed inflation rider for a client (which may be 1 percent or 2 percent) and then sell a higher daily or monthly benefit. Debra Newman, CLU, ChFC, LTCP, founder of Minneapolis based Newman Long Term Care, uses John Hancock’s benefit builder rider. It allows the owner to approach inflation differently—as a shared risk approach. It has an automatic crediting feature, which means that the client gets an increase in his policy benefit when the company’s investment portfolio earnings are more than 3 percent, with no increase in premium. “While this won’t be a robust inflation increase,” says Newman, “it allows the client to share in what’s going on and is a more affordable option.”
Another advantage of the benefit builder is the buy-up option. Every three years, the owner can increase his benefit by 10 percent, with no underwriting. Newman says this allows clients to see LTCI as a planning tool. Most people in their 40s or 50s can’t afford a robust LTCI policy, but can put this product in place as a “base plan,” allowing them to guarantee insurability and to buy up as needed.
LTCI policy: $4,500/month benefit for three years, 90-day elimination period with waiver of home care.
Another option is the hybrid policy. Newman says the annuity hybrid option is “disappearing, as companies can’t make money selling it, but the life insurance hybrid policy is still very viable.” This type of insurance option allows the client to buy a single-premium life insurance policy with long-term care benefits. If the owner goes on a long-term-care claim, Newman explains, it will pay him up to six times the deposit amount for his care.
Clients like this option because it lets them avoid the “use it or lose it” aspect of traditional policies. It offers a death benefit (the size of which depends on the use of the long-term-care option), and a rider would allow them to get a return of premium if they decide they want to surrender it. When working with clients, Newman and her staff rely on a new LTCI brochure from the LIFE Foundation, which has a whole page dedicated to clearly explaining this type of policy.
McAree says that many people may have trouble coming up with a lump sum for a hybrid policy, but thinks this is a great product for a rollover. She had a couple who had a permanent life insurance policy that had accumulated a nice cash value over the years. Their children were grown, so they needed less life insurance. They transferred the cash value and funded a new life insurance policy with long-term care benefits, with no adverse tax consequences. “In the right circumstances, these are really good products,” says McAree.
3. Consider partnering—in various ways.
With the industry in flux, it’s hard for agents to keep up with the changes. Add to this the fact that many agents aren’t prepared to talk to clients about why rates have gone up and to handle objections. The experts interviewed agree that it makes sense to partner with an LTCI expert. “Find a specialist in your community that you are comfortable with, and use him to advise you as well as your clients, and consider working jointly with him on aspects of your business that make sense,” says Newman. ■
By Maggie Leyes for the November/December 2012 issue of NAIFA Advisor Today Magazine. Maggie Leyes is a freelance writer andfrequent contributor to Advisor Today.