I love the blues. Complacency and inertia are not available when confronted with a driving beat, coupled to a soulful and experienced lament. Seems like everyone is tuned into the “combo blues.” The popularity of the combo blues is clearly self-evident by a recent off-the-cuff rough estimate that approximately 30 percent of all new life sales had some form of long term care or accelerated death benefit rider attached. The music of living benefits has arrived. However, I have never seen the degree of confusion and accidental misdirection as seems to be evident among those beginning to tap their feet to the new sales rhythm.
Hopefully we can begin with getting the nuances of the title distinctions within the new musical genre correct. “Combo” is simply any new financial instrument that performs more than one function or financial risk abatement. It could just as easily be disability income plus critical illness. If a product of that nature is not already out there, it is certainly on someone’s drawing board. There is still a lot of confusion out there. I suppose both hybrid or linked benefit products refer to some form of chronic illness benefit added to an annuity or life product. However, to make my own marketing and sales efforts less confusing in-house, we refer to hybrid products as those with a life/accelerated death benefit rider under IRC Section 101g, and linked refers to the addition of a true health/long term care benefit under IRC Section 7702B, and for God’s sake please check the fine print of the score so you know what music you are attempting to play before you begin.
I am always surprised how many times I need to respond to the question: “Which long term care risk solution alternative plays the least expensive melody?” Well, if you have to pay royalties on two songs instead of one, what would you guess? My favorite response has become: “Just think of stand-alone as term insurance.” This concept also helps when viewing the premium difference and answers consumers’ fears of wasting payments they may never get to use versus explaining the value of living benefits, where somebody always gets something. It’s an old song but still a goodie! I do understand the frequent lament concerning “use it or lose it.” I would simply remind folks that unused term premiums are the life blood of the life industry.
The message from the new sales music created from these products can be heard from all points on the life and annuity marketing compass. The beat is somewhat irresistible; someone always gets paid, underwriting is reduced or streamlined, product and premium outcomes are more predictable, return of premium is available, and the romance of “killing two birds with one stone” strikes a perceived chord of efficient harmony. Sales were already on the rise when the long term care provisions of the pension protection act went into effect in January 2010. Remember the core source of the new rhythm is that the internal cost of the long term care now takes place in a neutral tax environment, and the strength of the beat is reinforced by enhanced 1035 opportunities. Sales on average have increased 25 to 30 percent each year for almost 10 years.
As popular as this music has become, there are problems and concerns which should color your own decision to sing the Combo blues:
• The lyrics of the sales song should follow a consistent line of reasoning, beginning with, “Is this a life theme or a long term care theme?” Presenting long term care in the form of life insurance or life insurance in the form of long term care is disharmonious at its origin. If there is a need for life insurance and you wish to expand the sales concept by adding a chronic illness long term care risk leveraging rider—that works. Or if there is a need for long term care and you need to fine tune the music by offering the advantages of a long term care asset based reasoning—that also works. Just remember that the blues is most cost effective when you have the shortest distance between the risk and the premium. In other words, the musical composition of the combo sale must originate with the true reason for the sale, otherwise leave well enough alone and sell stand-alone.
• Do not forget the residual discordance that may be created by the tax deductibility of the premium. LTCI premiums can play that song, but life premiums cannot.
• The special high notes available from partnership or state premium deductibility will also not be available for life sales.
• There is greater personal pain if you choose the life refrains, as the client’s money will be used first. Whereas the tune may be sweeter when you select a health approach in which the client will be using the insurance company monies.
• Do not get carried away in the heat of the sales song by promising too much. For example, I too often hear a verse that sounds like, “With asset based sales the client can always get his money back.” This is not exactly true. If an asset based policy is surrendered for cash, the client will receive a 1099 for the cumulative annual cost of the rider plus any gain. However, it could be 1035’d into another life policy with the rider cost reducing basis in the new life policy and no 1099 would be issued. In other words, as fun as these words may be to sing out loud, there is no free lunch.
Combo blues, combo blues
All I want to hear is these combo blues
All night long, every other client or two
Now take off those old jams
And let’s hear some combo blues, all right!
—Sung to the music of the
Down Home Blues—Etta James
Other than that I have no opinion on the subject.
