The Last Word On LTCI...
Talk is cheap. It takes money to ride the train.
- Rudy Hagelman, 1928-2006
Ronald R. Hagelman Jr.
December 2018

Even before the Long Term Care provisions of the PPA went into effect in January, 2010, it was repeatedly predicted in this column that the day would come when almost every life company would have some form of long term care or chronic illness rider. It is simply too easy to sell against those who do not. We now live in a world where “living benefits” has become a holy mantra.

 A plethora of options to address the problem now exist, perhaps even more choices than the days of the apex of stand-alone LTCI health sales 15 years ago. But these riders are not created equal. You cannot escape two of the most basic principles of living: The Golden Rule, and “You only get what you pay for.” Sadly, at least as far as I’m concerned, the majority of these options are flawed and occasionally deceptive by default.

As a corporate consultant for the last 30 years I understand that these shortcomings may not have been completely intentional. They are the unfortunate result of a whole host of reasons or rationalizations: Early adopters that have not subsequently updated their offerings; pricing limitations where benefit reductions were required; benefit limitations needed to achieve other product emphasis; or marketing goals and, unfortunately, sometimes only half-hearted attempts to satisfy distribution without having to make a full commitment to solve the actual risk itself. Adding one reservation to corporate intent—expediency is never an excuse. 

“Danger Will Robinson!”  Read carefully the specimen policy and or rider that pertains to the circumstances required for benefit payment before you sell anything that remotely purports to address the subject of chronic illness in any regard. In no order of significance (and recognizing I may forget some) please look for the following:

  • Is it a health rider under IRC Section 7702B or a life rider under Section 101g? Which obviously leads to: “Do you require long term care certification to sell it?
  • If there is no upfront or ongoing identifiable cost. Always be initially wary of marketing conversations that claim “no charge.” “You only pay if you use the benefit.” I have never been a fan of claims of free insurance and I am uncomfortable selling a benefit you cannot define or illustrate. If you can’t tell the client exactly what they will be paid when they need it the most, my partner calls that a “pig in a poke.” No thank you.
  • Look very carefully for benefit payment timing limitations. Although “deferral” periods are not allowed, apparently an initial delay in the commencement of available benefits has been known to appear.
  • If it’s a life rider, what percentage of face does it actually pay?
  • Prior to more liberal language being added at the IIPRC in 2016, most life riders required a permanent disability. If this remains or has not been updated, frankly walk away.
  • If there are limitations as to location for care such as nursing home confinement, run away!
  • If there are extra charges simply to pay claims when needed, make sure your client understands the surcharges and that your E&O is current.
  • All chronic illness vendors bill monthly. Make sure your benefits pay the same way.
  • Does it have a residual death benefit? Consumer surveys rate this high as a desired feature.
  • The size and history of the company should be considered. Are they simply adding a fashionable and currently popular rider? Do they actually have a history in the senior market? Ask who will administer the claim. Are they going to attempt this novelty in house with no past experience, or have they at least contracted with an outside long term care TPA?
  • Underwriting is also a big issue. No one can, at this time, claim absolute actuarial certainty as it pertains to the balance between mortality and morbidity when both risks reside in one financial instrument. Not wishing to anger my many actuarial friends, I understand there is general agreement as to pricing formulas, but viewpoints as to degree of emphasis has a wide opinion spread. Frankly we can only pray we are not unintentionally making some of the same pricing mistakes that haunt all closed blocks of stand-alone LTCI.
  • In that same vein, are the costs of a particular combo policy, in all its multiple reincarnations, equipped with guaranteed premiums?
  • Personally, I am only comfortable with pay-as-you-go policies. I want to know exactly what my customer is buying and exactly what it will cost. I will therefore never have to look back over my shoulder to see if I’m being chased by unhappy and perhaps short-changed customers.
  • Please just do some fast math. Subtract the difference of the cost of buying the policy without the rider from the cost of the policy with the rider. If the net cost difference is more than about two percent to five percent, it deserves much more careful analysis.

I’m sure I’ve missed some “flaws” that will come to me after I turn this in so, bearing in mind this is an “opinion” column, here’s what should be considered ideal if your intention is to reduce, offset or pay for extended care. If it’s a 7702B rider without visible benefit limitations you’re good. Just bear in mind that you now have the pricing friction of two products tied together with a rubber band—and you really are selling two products which may increase price. Understand that under the NAIC 620 Guidelines a 101g rider cannot exceed the benefits of 7702B but it can and it should get right up against it like sticky onion paper. Changes made two years back at the IIPRC for policies filed through the IIPRC clearly now allow for this approach and the best examples follow that language. Be careful out there—it’s just not that hard to do it right!

Other than that I have no opinion on the subject.

Author's Bio
Ronald R. Hagelman Jr., CLTC, CSA, LTCP
CLTC, CSA, LTCP, has been a teacher, cattle rancher, agent, brokerage general agent, corporate consultant and home office executive. As a consultant he has created numerous individual and group insurance products. A nationally recognized motivational speaker, Hagelman has served on the LIMRA, Society of Actuaries, and ILTCI committees. He is past president of the American Association for Long Term Care Insurance and continues to work with LTCI company advisory boards. He remains a contributing "friend" of the SOA LTCI Section Council and the SOA Future of LTCI committee. Hagelman is president of Broadtower Insurance Solutions, a national IMO helping BGAs enhance LTCI production. Hagelman can be reached at Broadtower Insurance Solutions, Inc., 156 N. Solms Rd., New Braunfels, TX 78132. Telephone: 830-620-4066. Email: [email protected] Website:

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