The great opportunity in hybrid products

For those clients and prospects who object to  stand-alone LTCI policies, properly presented  hybrid products can be very convincing.

Any agent who has sold long-term care insurance has heard these objections before: “That’s too expensive.” and “What if I don’t use it?”

In fact, about two years ago, I was creating a financial plan with a client. We got to the long-term care section of the fact finder and had a nice discussion. This particular client actually had dealt with his father being in a long-term care situation for more than two years. His wife had a similar situation. He went into detail about it, and we just sat there and listened. He had let us know that this event had wiped out a lot of his parents’ savings. We then proceeded to discuss how a long-term care situation would affect his family. Leaving money to their family and church was very important to this couple.

My partner and I were actually able to build the premium for a long-term care policy on the both of them into their financial plan. It was affordable to them, and we found the money for the premiums without affecting their current lifestyle. We presented our overall recommendation, and the couple opted to implement all recommendations except the long-term care. When leaving the house after filling out six other applications, my partner and I looked at each other and were incredibly surprised that our client did not want to proceed with the long-term care insurance.

We finished setting up the other investment and insurance accounts, and we went back to deliver their contracts and to review for clarity of the process. When we were done reviewing, we brought up the long-term care again. We had another discussion about their family and tried to reiterate the importance. At the end of the day, the husband told us that he believed in his heart he would not need this type of care. He was 50 and could not see himself paying $60,000 in insurance premiums over his life, plus the opportunity cost. Even after having dealt with caring for parents, he believed it wasn’t going to happen to him. We had him sign a letter saying we presented LTCI and he had declined, and we left it alone.

Two years later, we were reviewing their financial plan and brought up long-term care again. This time, we used a new approach. We had a conversation about a universal life policy with a chronic illness rider. They were very receptive to this concept. Family legacy was so important to them, so this was a way for them to leverage some of their assets and gain life insurance and LTC coverage. They moved forward with this product. We felt really good that they put some protection in place.

The hybrid approach

That’s the great thing about the hybrid product: the policyholder can always see value. They know they will either pass away or live to an advanced age but require care. With ever-increasing longevity, 70 percent of us will need LTC services at some point after age 65.

According to the Long-Term Care Insurance 2012 Update put out by AARP, the average private-pay cost of a nursing home stay in 2012 is about $88,000. In 2010, the typical LTCI purchaser was age 59 and had fairly substantial income and assets.

Traditional LTCI has been going through some radical changes over the last few years. Carriers are pulling out of the marketplace. Some carriers are raising rates on in-force blocks of business. Product selection and design has become more limited. Underwriting is tougher. Many carriers are worried that they made some bad bets on claim experience.

We speak to hundreds of agents on a weekly basis and find that almost nobody is selling LTCI. I also find that a very low percentage of agents even know how the hybrid products work or even that they exist.

Is long-term care insurance dead or alive? We believe it’s alive! However there will be a need to follow the new LTC trends. The sale of life insurance/LTC hybrid products is picking up a lot of steam and will be a growing marketplace over the next 10 years. This creates opportunity for agents who will make the effort to learn how the products work. More important is developing a sales process that creates opportunity for positioning these products. When dealing with long-term care, it is not a transactional marketplace. You have to discover what the client’s position is and determine where potential risk lies in his or her overall plan.

LTC and life insurance are also emotional sales. Many agents have a tough time emotionally connecting with a potential client about these products. Protecting one’s family is something that is at the top of most people’s list. Most love their families deeply. Being able to connect emotionally with your prospects can mean the difference between making a sale or not.

If there was a market that had unlimited leads, a true need, low competition, and high margins … would you take advantage? The perfect storm is here. Becoming an expert in life insurance/LTC hybrid products can put you in a position to help countless people. As a producer, it can be very beneficial to find an underserved market and focus on that market. There is an incredible opportunity in selling life insurance/LTC hybrid products.

If this is a marketplace you want to penetrate, it is important for you to learn how to sell and market these products. Take the time and become great at what you do.

By Ryan Kus from the December 01, 2012 issue of Life Insurance Selling •  Ryan Kus is the director of life marketing at M&O Marketing in Southfield, Mich.,

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