Barry J. Fisher

“All our futures in chronic illness risk abrogation will be defined not by the eight million who bought some level of protection over the last 20 years, but by the 54 million we left behind!”—Ronald R. Hagelman, Jr.

In Romancing the Middle Market (Part 1)  we zeroed in on important recent data pertaining to life and long term care insurance (LTCI) in an effort to develop a strategy to help the middle market with their planning needs.  We discussed:

• How and why the middle market is underserved by the financial services industry;
• The sad fact that many Americans are unprepared for a wide range of financial emergencies;
• That financial optimism/pessimism varies widely depending on where one lives in America;
• The importance of developing a meaningful definition of the middle market;
• Why traditional long-term care insurance has missed the mark in the middle market; and,
• How we’ve been selling too much LTCI coverage to too few.

In Romancing the Middle Market (Part 2), I’ll cover:

• The two worlds of chronic illness coverage;
• The Great Expansion;
• More on what middle market consumers want from insurance companies and financial advisors; and,
• Solutions that work for middle market customers.

Is it Life Insurance or Long Term Care Insurance?
In the world of insurance, long term care is synonymous with chronic illness.  For the purposes of this discussion, both require an inability to care for oneself without assistance from another individual due to either physical or cognitive impairment.  Under the Internal Revenue Code, there are two ways insurance companies can provide tax-free benefits for chronic illness: §101(g) (life insurance) and §7702(b) (Health Insurance Affordability and Accountability Act—health insurance).  

Traditional LTCI is a §7702(b) product which confers upon it (a) the ability to call itself “long term care insurance” and, (b) general tax-deductibility of premiums.  §101(g) allows for an acceleration of a life insurance policy’s death benefit when a policyholder suffers from a chronic illness.  Life insurance policy premiums are not deductible, but the chronic illness benefits are tax-free.  Life insurance combination policies generally offer a §101(g) acceleration death benefit rider (ADBR) feature.  In addition, some offer an extension of benefit rider (EOBR) that will allow for continued payment of benefits after the initial face amount of the policy has been exhausted by the ADBR.  EOBR’s generally qualify under §7702(b).

Chronic illness benefits provided via §101(g) used to be the “redheaded stepchild” of the long term care insurance world.  Originally benefit qualification under §101(g) required permanent disability.  Recently, however, the Interstate Insurance Compact (IRPCC) will approve a §101(g) ADBR without this prerequisite, creating near parity between §7702(b) and §101(g) on this matter.  This equivalence, as it pertains to benefit qualification, has led to a rapid expansion of accelerated death benefit riders on life insurance policies of all types: Term, universal, variable and whole life are now in play.  

Two important facts about §101(g) ADBRs merit note: (1) The sale of these policies does not require agent continuing education; and, (2) policies that use this section of the IRC cannot call themselves long term care insurance.  Regardless, opportunities for chronic illness risk management have been expanded exponentially!  

So, to answer the question, “Is it life insurance or long term care insurance?” I will paraphrase the great Ben Feldman: “It’s dollars guaranteed for future delivery,” with an expanded ability to help you and your family at your greatest point of need.

The Great Expansion
The 2015 Society of Actuaries Report on Life and Annuity Living Benefit Riders and 2016 LIMRA U.S. Individual Life Combination Products each point to a rapid expansion of life insurance policies with long term care and chronic illness benefits.  Chronic illness ADBRs maintain a majority of market share with recurring premium and single premium options being equally popular.  More than 60 percent of sales occur from ages 50-79 (Figure 2 page 12—SOA). However, there appears to be growing frequency of purchase by younger consumers ages 35-50.  

SOA reports that 64 percent of purchases result from direct agent involvement, with agency building and independent brokerage leading the way closely followed by personal producing general agents.  SOA and LIMRA point to growing sales leadership in the banking and financial institutions sector (23 percent) with exclusive multi-line agents rounding-out the totals (12 percent).  This leads to one unassailable conclusion cited by a number of reports reviewed for our research: Life and long term care/chronic illness insurance is sold, not bought.  Agents are essential to sales success, and I will outline my thoughts later regarding actions necessary to support “the troops.”

The 50+ mass affluent individual continues to be the primary target market for most combo sales including chronic illness ADBRs.  Additionally, insurance companies haven’t honed their marketing messages beyond outreach to their natural or inherent customer bases.  This lack of outreach and imagination creates a big opportunity in the mass middle market as previously described.  

SOA points to a “better than expected” chronic illness claims experience from 2010-2013. Lower frequency of claims appears to be the significant reason for this development.  Adding chronic illness ADBRs does not appear to effect mortality, and while no improvement in persistency has been reported, it is expected this will occur as consumers perceive more value in their policies relative to the premiums they’re paying.

What Do Middle Market Consumers Want? (Part 2)
What are consumers looking for when it comes to their insurance companies and financial advisers?  For insight, we turned to the 2012 Ernst & Young Voice of the Customer Survey, the 2015 Deloitte Life Insurance Consumer Purchase Behavior study and the 2016 SOA Middle Market Life Insurance Thought Leaders report.  The good news is: Consumers generally trust the life insurance industry.  However, despite this, according to a 2010 LIMRA study, “56 percent of households had no individual life insurance policy: a 50-year high.”  The simple reason, according to the SOA, is that no one asked them to buy! 

These studies also confirm that consumers want a relationship with an adviser who will discuss their insurance needs and provide them with guidance.  However, the public is becoming more self-actualized in their decision-making process.  They want clear, simple and concise information about their options and how the financial instruments they purchase will work for them over time.  Product transparency is critical.  The Deloitte study sums it up clearly: “Most current carrier models seem to focus on adapting existing go-to-market strategies to a digital marketplace.  Our study suggests that the life insurance “winners” of tomorrow will likely be those organizations that blend an advice-driven approach with a digitally enhanced engagement strategy to help meet evolving consumer expectations.”

Ernst & Young and Deloitte agree it is critical to respond to the changing needs of our customers as their life cycle progresses.  Strikingly, the life events we spoke of in the 1970s continue to hold true; marriage, parenthood, home ownership, and retirement are all key buying times for life insurance. By successfully weaving the life insurance and chronic illness messages into a consistent marketing effort, we can encourage people to consider insurance planning with a guaranteed product that can withstand a lifetime of changes.  

Consumers want to feel good about the company with which they are doing business.  Additionally, an ongoing relationship that includes rewarding customer loyalty and cross-selling is likely to increase persistency and ongoing sales opportunities.  Incidentally, these features work extremely well in agent distribution. Many advisers are true believers in the companies and the products they sell.  This can be a huge value-add to any marketing effort.  

While we’ve already discussed how the mid-market is generally underserved, the SOA points out two areas where this is not the case: The senior market and voluntary worksite.  These areas have well-established independent distribution.  Affinity group marketing would also fall into this category and all would be well served by a life/chronic illness product that is easily understood and purchased.  

There are hurdles to success in this marketplace, including: Competition for premium dollars; pricing; underwriting; providing pertinent information through various means; and agent recruitment and training.  However, these obstacles can be surmounted with affordable insurance products that appeal to consumers during various stages of their lives.

The Path Forward
The research Ron Hagelman and I conducted leads to many important conclusions. While there is no one magic bullet, providing middle-market consumers with life and chronic illness solutions will require more insurance companies to step out of their comfort zones. Those with the vision and systems to create products that fit this market niche, and to distribute them effectively through BGAs and agents, will win this marketplace.  

We believe mass middle-market consumers are ready for long term care planning solutions that are easy to understand and purchase.  The formula for success includes:

• Providing consumers with understandable and actionable intelligence;
• Developing better agent support tools, empowering them with the ability to communicate product planning concepts, benefits and value;
• Affordability and guarantees;
• An insurance product that most can qualify for;
• Streamlined acquisition and fulfillment processes; and,
• Insurance companies consumers can trust.

These components, coupled with strong messages highlighting the value of supplemental chronic illness protection, will resonate with Americans in the underserved mid-market.  A marketing and sales campaign emphasizing the importance of private-pay status and control of personal destiny must be a key element of this effort.  This strategy and approach will help consumers avoid potential exposure to the financial and emotional devastation caused by an extended need for long term care.

When I was a young pup starting in the life insurance business, 40+ years ago, our bread and butter sales were made to mid-market consumers: People who had just gotten married or purchased a home, small business owners who greeted you wearing an apron or wiping grease off their hands, young professionals just out of college (much like myself) who were starting new jobs and families. These individuals were looking to make ends meet while providing themselves and their loved ones with basic financial security.  In those days $10,000 face amount policies were the norm, $25,000 made for a good day and a $50,000 whole life sale was something to celebrate.  These middle-class consumers, some of whom would eventually become affluent, were living the American Dream and young and hungry insurance agents romanced them for their business.

Today, many agents and financial advisors don’t have the time or inclination to work with this sort of consumer.  The traditional life insurance agent is “aging-out” of the industry. Those left are “elephant hunters” working the estate planning or high-end business insurance markets.  Few pure life insurance agents are being hired today and the young recruits that enter the financial services industry are trained as advisors in complex investment vehicles.  They are after assets under management—to them, life insurance is an afterthought.  None of this is necessarily bad, but like many other trends in our society it has left the middle market sadly underserved.  

Market Watch reported on April 30, 2017¹:  Some 50 percent of people are woefully unprepared for a financial emergency, new research finds. Nearly one in five (19 percent) Americans have nothing set aside to cover an unexpected emergency, while nearly 1 in 3 (31 percent) Americans don’t have at least $500 set aside to cover an unexpected emergency expense, according to a survey released Tuesday by HomeServe USA, a home repair service. A separate survey released by insurance company MetLife² found that 49 percent of employees are “concerned, anxious or fearful about their current financial well-being.”

On September 6, 2017, The Wall Street Journal  poll³ reported growing disparity of opinion and optimism between college-educated urbanites and the middle-class, particularly those in rural communities.  The opportunity for upward mobility and retirement seems to be slipping away from many Americans. 

“Rural and working-class white Americans are also pessimistic about their retirement prospects. Their views are one reason that only 13 percent of Americans expect to retire before age 60, down 10 points since 1999. The share of Americans who say they will retire at 70 or older has climbed 10 points.”

Two other facts, known to many reading this article, cause me to lose sleep:

1. LIMRA reports that life insurance ownership is at a 50-year low; and
2. Society of Actuaries data reveals that while we’ve done a great job of selling large long term care insurance policies to affluent Americans (both traditional and combo), the middle market is priced out of the game. 

What can our industry do to better serve the middle market, both for life and long term care insurance? What’s the path forward?  I believe a finer focus on who the customer is and what they want can help us re-purpose existing insurance products and create new, improved versions that are affordable and reliable.  What follows is from a research project my business partner Ronald R. Hagelman, Jr., and I wrote about issues faced by middle market consumers regarding financial service providers and vehicles that provide liquidity for long term care and life insurance. We believe there is a way to help less affluent customers achieve their retirement and security goals. 

Data and presentations reviewed and cited in this report include:

• Ernst & Young: Voice of the Customer —Time for Insurers to Rethink Their Relationships—2012
  
• U.S. Census Bureau: Examining the Middle Class in the United States— September 2014
  
• Society of Actuaries Report on Life and Annuity Living Benefit Riders—April 2015
  
• Deloitte: Life Insurance Consumer Purchase Behavior—September 2015
  
• Society of Actuaries Post-Retirement Experiences of Individuals Retired for 15 Years or More—January 2016
  
• LIMRA U.S. Individual Life Combination Products Annual Review 2015
  
• Society of Actuaries Long-Term Care and the Middle Market—May 2016 (Bodnar, Forman & Zehinder)
  
• Society of Actuaries Middle-Market Life Insurance Findings from Industry Thought Leaders—November 2016

Who is the Customer?
Are middle market consumers the same as the middle class?  Possibly, but even the U.S. Census Bureau has difficulty pinning down a working definition of the middle class.

While much has been written on the middle class, there is no widely accepted approach to defining the middle class.  Some analyses of the middle class equate being in the middle class with having income in the middle of the income distribution.  Other analyses include in the middle class anyone who self-identifies as middle class.  A third approach is to count as middle class anyone who has achieved certain aspirations—owning their own home, having savings for retirement and/or the ability to send their children to college.  As may be expected, these disparate approaches do not identify the same people.

For our purposes, we turn to a Society of Actuaries (SOA) presentation prepared by Vince Bodnar, Stephen Forman and Sania Zehinder in 2016 entitled Long-Term Care and the Middle Market.  This report identifies two primary components of the middle market:

Middle Mass:  55-64, average income $75,000, average assets greater than $100,000;

• 83 percent of market for long term care insurance (“LTCI”).
• Low ability to fund catastrophic costs out-of-pocket.
• Good ability to pay for LTCI.

Mass Affluent:  55—64, average income $132,000, average assets approximately $400,000;

• 17 percent of market for LTCI.
• More discretionary income to spend on LTCI.
• Agents prefer this group.

This presentation, relying on Economic Policy Institute findings, highlights some uncomfortable truths about the middle market:

• Most families in that large population have little to no retirement savings;
• Family finances have not recovered from the collapse of the housing bubble;
• Retirement savings have stagnated since 2000 with nearly half of families having $0 in retirement savings;
• Those 55—64 have a median net worth (excluding the home) of $45,447;
• Median household incomes drop significantly after retirement:
  
  • $71,000 vs $32,000.
  • Wide disparities between married and unmarried.

Did the middle market ever embrace traditional long term care insurance?  It appears they did, in the late 90s and early 2000s.  Presumably this was enabled by employer-sponsored group product offerings, Public Employee Retirement plan programs and the Federal Group Long-Term Care program.  However, by the mid-2000s, overall sales of traditional LTCI declined precipitously with average premiums exceeding a price point acceptable to middle market consumers.  By 2010, traditional LTCI sales became a product for pre-retiree, college-educated and affluent consumers.  Moreover, the primary motivation for purchase shifted dramatically.  In 1990, the primary reason for purchase was to avoid dependence.  In 2010, the “new” long term care insurance consumers were more concerned about protecting assets.  

Implied in much of the data is that post-retirement mid-market consumers, ages 65-74, are a significant cohort that have heretofore been unable to adequately plan for long term care.  These individuals either had no opportunity to purchase LTCI because no one ever approached them about it, or they fell through the cracks of the “generational turnover” cited in the SOA data.  Regardless of the reason, this post-retirement group is a target-rich environment that needs to supplement their retirement income and savings against a long term care event.

What Do Middle Market Consumers Want?—Part 1
The SOA Post-Retirement Experience of Individuals Retired for 15 Years or More project conducted extensive focus groups in the United States and Canada and determined an immutable fact:  Long term care was number one on the list of unexpected expenses that create the greatest shock in retirement.  While some unexpected expenses such as home repair, inflation and taxes are predictable, the survey found that “long term care, when it is required, is often a financially catastrophic expense in retirement.”  The survey went on to conclude that:

“…many of the unexpected expenses in retirement could be mitigated with better planning and financial risk products.  Few have annuities, long term care insurance, reserve funds for home maintenance and repairs, or other products to help them manage expenses in retirement.  A number have life insurance coverage, but coverage levels are often low and intended only to cover funeral costs.  Use of these products might help to prevent financial shocks in retirement.”

Traditional long term care insurance misses the mark for many middle-market consumers due to its cost and complexity.  How much will consumers spend for some coverage?  An insurance company survey reveals a considerable jump in consumer interest and willingness to purchase long term care insurance when monthly premiums approximate $100/month.  AHIP confirms this finding in its Buyer/Non-Buyer Survey. 

The average annual premium for traditional long term care insurance is currently about $2,500 per year, over twice the price point middle market consumers are willing to pay for coverage.  Traditional carriers have responded by re-packaging current plans in efforts to appeal to mid-market buyers and have achieved some success. However, the inherent complexity of traditional products and concerns over continual in-force premium increases, creates dissonance in the minds of consumers and agents.  

How Much Long Term Care Coverage is Enough?
One-hundred-percent risk mitigation was the hallmark of traditional long term care insurance planning from the early 1990s through 2005.  As wholesalers, we trained agents on a simple proposition: determine the cost of care in your geographic area, include five percent compound inflation and lifetime benefits and your clients will be able to afford the best care for as long as they need it.  

Consumers who purchased policies with this benefit configuration, particularly if they used a limited payment option (10-pay or one-pay), were well-served by this strategy.  They secured high benefit policies at prices that were likely too low, due to inaccurate lapse rate assumptions and an unforeseen evolution in care options such as assisted living facilities. Couple these unanticipated developments to a historically prolonged low interest rate environment since the mid-to-late 2000s, and we now have a very constricted traditional market with products priced right, but too high for most mid-market consumers.  

As pricing became problematic, even for mass affluent consumers and “one-percenters,” many of us asked for more insight into actual claims data.  Maybe we were selling too much to too few?  We saw the need to sharpen our pencils and apply a more disciplined approach to the question, “How much is enough?”  As results of our inquires came into focus, it became clear that while the catastrophic cognitive claim is always a possibility, most consumers would be well-served if they had an extra $100,000 of long term care “liquidity.”   

We recently asked our friends at the Long-Term Care Group, Inc., if they could provide us with a big picture of actual claims they are experiencing.  They reviewed claims data for two very large groups, filtered for benefit design variation, 0-day elimination periods (thus removing short-term claims) and open claims and reported the following:

• 80 percent of claims had $100,000 or less in paid claims;
• 60 percent of claims had $50,000 or less in paid claims; (These only include claims closed in the past 10 years.)

Interestingly, these findings are consistent with other recent claims data we’ve seen from at least one major traditional long term care insurance company.

If, in fact, millions of mid-market Americans and their families can be helped by having an additional $50,000 to $100,000 of long term care insurance liquidity, what is the most direct and cost-effective way to deliver it?

…to be continued!

In Part 2 of Romancing The Middle Market—The Future of Chronic Illness Sales Success I will discuss:

• The two worlds of chronic illness coverage;
• The Great Expansion;
• What mid-market consumers want—Part 2;
• Solutions that will work for mid-market customers.

References:

1. http://www.marketwatch.com/story/half-of-americans-are-desperately-living-paycheck-to-paycheck-2017-04-04
   
2. https://benefittrends.metlife.com/us-perspectives/work-redefined-a-new-age-of-benefits/
   
3. https://www.wsj.com/article_email/where-the-american-dream-is-slipping-1504690202-lMyQjAxMTE3MTA2NjUwNTY4Wj/
   

One thing is certain: When your phone rings and the client wants long term care insurance, it’s often too late to help them with traditional product options.  Or, when you get the call asking if you can still get coverage for their mom or dad because they just moved them into a care facility, your heart sinks.  The simple answer “no” doesn’t express the needed empathy in the situation, so you spend 15 to 20 minutes commiserating and encouraging them to get their own long term care planning squared away.

Those who have failed to plan with traditional or linked product choices are generally faced with two options:

1. Folks with modest means, intent on controlling the care they receive, must supplement their fixed retirement income by liquidating other assets to pay for care.  Two additional complications often raise their ugly heads: There is another call on the retirement income and assets, namely the healthy spouse;  and, liquidating an income-producing asset to pay for care reduces retirement income and may create a tax issue.  Talk about adding insult to injury.
2. Wealthy clients may have the income and assets to pay for whatever care they desire.  However, an open-ended drain of treasure could negatively impact heirs or other family members for whom the client hoped to provide a legacy.  In this case it would be helpful to create a wall or stop-loss to protect that inheritance.

One thing both these groups of consumers need is leveraged cash flow enhancement.  This is a knotty problem indeed, particularly since the horse has already left the barn!  The good news is: You may be able to offer solutions to consumers who face the costs of long term care without insurance (or without adequate coverage).  

The financial planning instruments I’m about to share with you are not new, but they include innovations designed specifically for those in need of leveraged cash flow enhancement.  Before sharing details, it’s important to note that these aren’t your typical insurance product or sale.  In presenting these options, you may be working with family member(s) who hold the power of attorney for the client in need.  You should be mindful of other financial planning or legal professionals in the decision-making process; e.g. elder law attorney, stock broker, CPA, etc.  Finally, don’t forget the family members who aren’t in the decision-making loop but may be “expectant heirs.”  With this complex landscape, a word of caution is in order: Don’t be the “Lone Ranger.”  Make yourself part of the circle of advisors who are trying to help a client in need.

The first opportunity involves a growing movement by State and Federal governments to provide consumers additional private funding options to pay for care.  A number of states have passed enabling legislation to encourage those in need to create Long Term Care Benefits Plans.  The funding vehicle for these plans are life insurance policies that are converted into life settlements.  What makes this different from your garden-variety life settlement?  

• The converted life insurance policy used to fund the long term care benefit account must be placed in an irrevocable, FDIC-insured account that makes payments directly to the care provider;
• The person must be able to choose the form of care they want;
• A funeral benefit must be preserved—generally, the lesser of five percent of the face amount of the life insurance policy or $5,000 is reserved as a death benefit payable to the estate or beneficiary;
• Any unpaid balance in the account must be paid to the estate or named beneficiary.

According to Conning & Company Research, seniors in the United States own approximately $500 billion of life insurance. Many can’t afford the premiums as they get older, particularly if long term care expenses begin pressing on them. In fact, when they do stop paying premiums, they received less than 10 percent of the face value, and 88 percent of policyholders receive little or no value.  Thirty-eight percent need to liquidate their life insurance policies to qualify for Medicaid.  

Market opportunities to consider include:

• Owners of life policies $50,000+ in danger of lapse or surrender.
• Families with immediate need to fund care for a loved one.
• Desire to remain private pay versus Medicaid.
• Applicants declined for long term care insurance.
• Parents of clients who have purchased LTCI.
• Financial advisors trying to help someone who needs care.
• Individuals already in need of care.

On another front, Genworth has introduced a single premium immediate annuity (SPIA) that is a new twist on an old idea. IncomeAssurance Immediate Need Annuity has its origins in Great Britain, where underwritten annuities specifically designed for enhanced cash flow based on mortality and morbidity were developed.  The profile for individuals suitable for this product are those previously discussed.  They need to maximize their income to pay for care, for however long they need it, and not run out of money.  They can also use IncomeAssurance as a stop-loss to wall off an unknown catastrophic risk. 

Individuals aged 70 to 95 who are currently self-funding long term care expenses by liquidating assets can enhance their cash flow without endangering their entire nest egg.  They can also include annual cost-of-living adjustments to the monthly payouts and purchase death benefit options as a hedge against untimely death.

What is the access point for reaching consumers with immediate need for care and cash-flow enhancement?  For those of us who have been in the long term care insurance industry for the past 25+ years, the answer may get caught in your throat: Individuals about to enter or already in care communities (assisted living or nursing homes) or receiving home care are the target market for these new long term care planning solutions.  Agents and advisors will generally not be working directly with the client in need.  Initial contact is likely to be made with care community personnel, e.g. facility administrators, sales representatives, home care service providers, financial advisors and the elder law community.

Talk about an immediate need!  Care community professionals are working with families in need every day to determine the services required for an elderly loved one, and the omnipresent issue of how they’re going to pay for top-quality private care for mom or dad.  Recently, I spoke to the administrator of a 16-bed memory-care facility close to my home in California, to determine how often cash-flow-enhancement tools, as described above, would help him place a new resident.  His answer: Almost always.  And, even in a small facility such as his, this care community professional felt he’d have at least three referrals per month for an agent he trusted.  Here is something else to note: There’s tremendous competition among care communities to keep residency rates above 90 percent. Therefore this administrator sees these products as giving him a competitive advantage.  

The financial instruments we are now working with are a game changer for consumers, care communities and insurance professionals.  In addition, agents who wish to become care funding specialists are making ancillary long term care insurance sales to family members of care recipients. To these people, the need to plan for the financial chaos of a long term care event is painfully obvious.  Now, you can and should answer “the call”!

Do agents need special training to enter this marketplace?  Yes and no. Agents will need to have their state specific LTCI, annuity, anti-money laundering and life settlement/viatical training (if required by law).  Companies offering these financial instruments also require product specific training, mostly online.  Finally, since our organization provides access to care communities and elder law specialists, we require additional training and support in the areas of Veterans Benefits, Medicaid and how to work with third-party and power-of-attorney referral sources and the families they serve. 

Let’s be clear: there is no substitute for long-term care planning for healthy people in their 50s, 60s or even 70s utilizing traditional or linked insurance products.  However, as discussed in previous writings over the past 18 to 24 months, new products and concepts are being created in response to an anemic traditional insurance market and an aging demographic of those who failed to adopt an adequate insurance program. These solutions can help people enhance and safeguard their cash flow when they require care, although they don’t provide the leverage of traditional insurance products.  

Agents and advisors, like their clients, can run but cannot hide from the long term care planning need.  You currently have two new options that may answer the age old question, “What do I do now?” when consumers are declined for long term care insurance or they are already receiving care.

The phone is ringing—answer that call! 

Much the same could be said about the long term care insurance industry, but first these headlines:

• There are more options for long term care insurance products/planning solutions today than in recent memory.
• Three distinct classes of policies/programs have risen from the ashes of the long term care insurance heyday of the mid-2000’s:
  
  • Traditional
  • Hybrid and Linked
  • Long term care planning for people who failed to plan
• The game will be won by proactive agents and BGAs that focus on the consequences of not planning for an extended care event (thank you Harley Gordon), and by fitting the right client to the appropriate liquidity and underwriting solution.

Pollyanna I am not.  But a clear-eyed view of the shifting tectonic plates in the world of long term care planning informs me that much positive energy and change is upon us.  

A high-level perspective of the situation indicates that public policy concerns and private sector innovation are actually beginning to help consumers.  Federal and state initiatives are focused on tackling many dysfunctions in how we finance and provide for long term care.  There is also some acceptance that this problem cannot be solved without affordable private insurance options.  The Society of Actuaries Long-Term Care Section has been providing excellent guidance and innovative concepts to the government and private sector on myriad topics.  Bottom line: there’s a lot of intellectual firepower arrayed to help individuals cope with an extended care event.

While traditional long term care insurance sales (by premium volume and number of policies sold) have continued to slide, a broader view of long term care planning product solutions, including hybrid, linked and short term care policies, bears consideration.  By cobbling together reports by LIMRA and the American Association for Long-Term Care Insurance, it appears the total number of policies with some sort of long term care benefits sold in 2015 meets or exceeds the total of traditional and combo policies sold ten years ago.  

While in-force rate increases continue to vex legacy blocks of traditional LTCI, a 2015 Society of Actuaries study (reported at last year’s NAILBA annual meeting) shows that policies issued in 2014 or after have a low (10 percent) chance of future rate increases versus those issued in 2000 (40 percent).  The amounts of anticipated rate increases are also greatly reduced on currently priced policies.  Another important good news story from Life Plans is that claims are being paid, and there is generally high consumer satisfaction amongst claimants and caregivers when traditional policies are called on to keep the promise we made at time of sale.

Companies remaining in traditional LTCI continue to adapt, and some are growing.  Last year Genworth did several studies that refocused sales efforts on lower premium price-points and smaller benefit packages. This has resulted in multiple carriers re-packaging existing benefit plans and a re-thinking of how best to underwrite the risk.  On the opposite end of the spectrum, National Guardian Life has revived the corporate carve-out market by bringing back lifetime benefits, 10-pay, 1-pay and return of premium options.  Multi-life continues to be alive and well at LifeSecure and Transamerica.  Finally, I was recently at the Mutual of Omaha home office and was advised that they like the traditional risk and have capacity for more.  

The life hybrid product market with 101(g) chronic illness riders continues to expand. More important, the benefits have improved. In 2014 I wrote several articles outlining the variances between 7702(b) long term care and 101(g) chronic illness benefits, cautioning producers and advisors to be mindful of differences, primarily the permanent disability language in 101(g).  What a difference two years makes!  Thanks to innovation at the Interstate Insurance Compact, 101(g) riders are no longer required to contain the permanent disability restriction. Therefore, they resemble and operate more closely to the long term care benefits to which we traditionalists are accustomed.  Additionally, a notable market advantage of 101(g) policies is: they do not require continuing education to solicit, thus removing a bar to entry for many agents.   

Two or three years ago I wouldn’t have thought I’d be telling you how to help those who failed to plan for a long term care event. Today, there are two products specifically designed to enhance and/or guarantee income for individuals currently receiving care. Genworth’s Income Assurance is a medically underwritten single premium immediate annuity, focused on long term care benefits.  LifeCare Funding’s Long-Term Care Benefit Program converts unneeded or unwanted life insurance into beneficial cash for care.  Together they are powerful tools for families in need now.

Who are the consumers for these product innovations?

1. Folks with modest means, intent on controlling the care they receive, and must supplement their fixed retirement income by liquidating other assets to pay for care.  Two additional complications often raise their ugly heads: there is another call on the retirement income and assets, namely the healthy spouse.  Also, liquidating an income-producing asset to pay for care reduces retirement income and may create a negative tax issue.  
2. Wealthy clients may have the income and assets to pay for whatever care they desire.  However, an open-ended drain of treasure could negatively impact heirs or others for whom the client had hoped to provide a legacy.  In this case it would be helpful to create a wall or stop-loss to protect that inheritance.
3. Well-off children who are paying for care of their parents.  Again, while they may be able to afford the cash-flow or asset drain to pay for the care, creating a stop-loss against an open-ended financial commitment makes sense.

These consumers have needs in common: leveraged cash flow enhancement, effective utilization of existing financial tools, and a guarantee not to run out of money to pay for care.  These are knotty problems indeed, particularly since the horse has already left the barn!  The good news is that you may be able to offer solutions to consumers who face the costs of long term care without insurance (or without adequate coverage).  

In review, here’s what I see as current reality:

• A stabilized traditional marketplace with companies that want new premium, are willing to consider more consumers with different underwriting needs, and offer pricing options that can fit more budgets.
• An expanding life hybrid and linked marketplace that is a viable alternative to traditional coverage choices.  The products span the life and annuity spectrum with varying degrees of underwriting nuance that can help the non-traditional consumer.
• Long term care financing options for individuals who are already receiving care at home or in a facility.  This is an enormous and growing untapped market and an opportunity for a second bite of the apple.

So Pollyanna no, cautiously optimistic yes.  However, the key to sales success continues to be in the hands of agents, advisors and brokerage general agents who are willing to be proactive in their pursuit of providing financing solutions for those planning for or in need of long term care. The opportunity is clear to me because over the last few years I’ve seen so many abandon the effort to help clients in this area.  One cannot wait for a consumer to call asking for help; at that point it’s usually too late to offer the best and most affordable solutions. 

Time and health are perishable commodities in long term care planning.  Our job isn’t complete unless we ask clients the question, “Have you considered the consequences of not planning for an extended care event?”

LTCI Round Table:

Brittani Button, Art Jetter & Company
Michael Smith, CPS Horizon
Barry J. Fisher, Broadtower Insurance Solutions Inc.

Question: Has dependable, sustainable rate stability finally arrived in the stand-alone LTCI market?

Button: Yes. Pricing on blocks of long term care insurance policies designed prior to 2005 underestimated appropriate premiums through two pricing assumptions: 

• Interest rates. Probably the most significant was the interest rate at which future claims are discounted. Sustained low interest rates proved that assumption incorrect. The discount rate used today is very small.

• Lapse Rates.  Those five to eight percent lapse assumptions were grossly overestimated. Once a long term care insurance plan is in force, they rarely lapse, perhaps less than one percent.  

In addition, carriers now limit benefit periods, making the potential claim predictably finite. Carriers today limit rate increase risk by using the most conservative interest, lapse and benefit assumptions.

Smith: I think it has for new products being sold. There is enough historical data and lessons learned about lapse ratios, pricing and claims that I believe the market leaders have it figured out and priced properly. However carriers will continue to ask for rate increases on older blocks of business and in some cases leave the marketplace like MedAmerica did earlier this year.

Fisher: Last year the Society of Actuaries did an extensive study to determine if current traditional product pricing is more stable than policies that were introduced 10-15 years ago.  The answer was “yes”— significantly more stable.  That being said, premiums on currently priced products are, in my opinion, still likely to go up sometime in the future—particularly if the overall interest rate environment continues at extended historical lows and/or claims durations exceed those that are being anticipated.  The low interest rate environment also impacts combo products in two ways: First, in the ability of insurance companies to absorb the internal cost-of-insurance for the chronic illness component of the policy; and second, in the appetite of the insurance companies to want to enter the market. Older traditional policies will probably continue to experience periodic premium increases.

Tiffany Albert, LifeSecure Insurance Company

Barry J. Fisher, LTCP, Broadtower Insurance Solutions, Inc.

Marc Glickman, FSA, MAAA, LTCP, LifeCare Assurance Company

Angie Hughes, LTCP, CSA, Producer’s XL

Alex Ritter, FLMI, LTCP, Art Jetter & Company

Q: What specific challenges do you see to influencing brokers successful with other product lines to commit to having the LTCI discussion with their clients, and how can the industry address them?

Tiffany Albert: Historically, long term care insurance (LTCI) has had a reputation for being a complex and complicated product. As such, brokers who have truly embraced LTCI have established a unique expertise and often choose to sell it exclusively. Similarly, brokers with other lines of business tend to shy away from selling LTCI. More recently, brokers have developed a renewed interest in strengthening their voluntary offerings as a result of the Affordable Care Act (ACA) and are looking to boost their earnings by offering other products. This presents a great opportunity to learn more about LTCI and its benefits.

In selling LTCI, as with any insurance product sales, it is important that brokers invest time in understanding their clients’ needs. LTCI is not a one-size-fits-all type of product. Each plan is custom designed for the client, so having a good line of sight into his financial goals and how much coverage he is seeking is imperative.

LifeSecure remains focused on creating competitively-priced, straightforward product designs. This helps the client to make a buying decision more efficiently and enables the agent to close the sale more quickly. LifeSecure also simplifies the selling process by maintaining the fastest underwriting turnaround time in the industry and by offering an electronic application process.

As carriers, we must continue to offer unique and innovative solutions that help more agents do business in LTCI. We must also ensure we’re providing agents with a strong educational background on LTCI to make it easier for them to sell the product and protect their clients. Our industry as a whole will benefit from having more LTCI experts.

Barry Fisher: Day-to-day compliance burdens, along with the Affordable Care Act (ACA), have, in my opinion, reduced much of the agents’ excess bandwidth to take on new products of any kind. So unless their clients ask for LTCI, it is overlooked. A broker needs to make a commitment of time and effort to successfully take on a new product line such as long term care insurance. It requires new knowledge, CE, and now they also need to understand life insurance and annuities. Brokerage general agents (BGAs) can help agents bridge this gap, but the challenge is there. I also believe that the ACA has sucked discretionary premiums out of everyone’s pocketbook, making it harder to find the money to pay for new insurance. The combination of these factors creates a tough environment for long term care sales.

Marc Glickman: Addressing the following two challenges will allow brokers to more easily commit to the LTCI market:

The first challenge is to simplify the LTCI discussion. By focusing at a high level on the benefits of the coverage, brokers unfamiliar with the LTCI space can more easily educate their clients. Based on each client’s profile, brokers can be prepared to determine which clients are the best leads for different LTCI coverages. For example, although the hybrid life/LTCI market is often suggested as a substitute for standalone LTCI, the two products are clearly geared toward different clientele. Greatly simplified, hybrid products fit those who are already in need of life insurance or annuities but are willing to substitute those benefits for an LTCI benefit should the need arise. On the other hand, stand-alone LTCI is geared toward healthy individuals with assets to protect against a catastrophic event should they outlive their life expectancies. With this mindset, stand-alone coverage that offers comprehensive benefits such as lifetime benefits, 10-pay and single pay are designed to meet the need.

The second challenge is new business price stability. LTCI new business pricing has increased to a point where it is extremely unlikely that future increases will be necessary. In addition, with virtually every major carrier having needed to perform substantial rate increases due to the under-pricing of legacy business, it is important to recognize that even with those increases, premiums for the legacy business are still lower than the current new business premiums.

The legacy business under-pricing was primarily caused by lower lapse and interest rates than originally anticipated. Conversely, current products use lapse and interest rates that are so low it is difficult to develop scenarios in which they will be insufficient on a forward-going basis.

Angie Hughes: What I find in my distribution to be the biggest challenge facing most brokers today in having discussions around LTCI is just that they are successful in other product lines, but with LTCI being a resistant topic for both broker and consumer, why bother. It is, by far, easier to wait for the consumer to ask about LTCI and then give them some quotes than it is to really work up the conversation and present the need for LTCI and what it does for the family once they are in a crisis. With LTCI, you have to be very patient and comfortable with the word “no.” You will be told no far more often than yes, but if we don’t at least give consumers a chance to say no, are we really doing our job? How the industry can help is a double-edged sword. We ask for easier products, fewer moving parts, and then we don’t really like them. We also want rate stability, but what is that anymore? We are living in a challenging time with LTCI sales, and if our hearts believe that this type of insurance can really help families, then we must continue to bring up the topic, have the tough conversations, and just educate families on what really happens when they need help and who actually pays for the care.

Alex Ritter: Consumers have grown increasingly aware of the need for long term care planning. Clients want to have the long term care planning discussion. They will have it with someone. If their broker isn’t talking about it, someone else will.

We need to understand that new business pricing problems are behind us. Older generation policies were subjected to rate increases, and some carriers left the market. However, the carriers selling LTCI today found accurate pricing, solid underwriting and policy design solutions.

Q: What factors should agents consider regarding a decision to address the long term care risk in planning discussions with clients?

Fisher: New product choices mean that consumers have the opportunity to do a lifetime of long term care planning. Agents need to be fluent in general long term care matters, but I don’t think they need to be experts. They should be able to rely on their BGA for detailed support. Sometimes the discussion with the prospect will be about life insurance with coverage for chronic illness as a “bonus” benefit. Other times traditional long term care insurance or linked products where the life insurance is actually the incidental benefit will take center stage. Therefore the broker will need to hone his fact-finding skills so he knows what his client’s needs and focus of attention are.

Glickman: The planning discussion should be designed to understand whether the projected retirement income can support the catastrophic costs associated with long term care, together with the ongoing retirement needs of the healthy spouse. While the answer could be care provided by the spouse or the children, the emotional and physical impact on healthy family members providing that informal long term care needs to be properly understood by the client. If the answer is to use retirement income funding, it needs to be understood how much of those funds can pay for care, what types of services can be afforded, and whether adequate funds will remain for the primary retirement needs. Generally, the availability of LTCI provides significant quality of care improvements with funding for better services/facilities and the ability to remain at home longer.

Hughes: I believe that everyone should hear about LTCI, but not everyone needs to buy it. Probably the first question in deciding on whether or not to continue the discussion is, “Are you healthy enough?” Why go down the painful task of taking an application just to have your client declined due to health reasons? This is where your field marketing office can assist greatly. All carriers have knock-out questions and medications. I would say the next factor would be finances: “Can you afford it?” Now that is the million-dollar question, and you will see great debate around this. At what point should someone rely on aid or self-insure? Again, this goes back to my adage, everyone should hear about it but not everyone will buy. Is something better than nothing? My opinion is yes!

Ritter: With the increased emphasis placed on underwriting, prequalifying a client’s health is crucial. To help brokers maximize placement, we have a brilliant chief underwriter on staff who can help select the right carrier and help place cases. Good field underwriting ensures that the broker’s time is well spent and prevents unwanted surprises for both broker and client.

Understanding client finances, including the ability to pay ongoing premiums, the ability or desire to self-insure, and the amount of assets the client wishes to protect is essential. Understanding the client’s employment and income tax situation can help the advisor direct the most tax-savvy payment method.

Every client has a unique set of circumstances, wants and needs. When brokers have done proper fact finding, we can help them find these value propositions, which close sales.

Albert: As with any product, it starts with knowing your client—not only understanding his financial goals, but also considering things such as age, health and family history. LTCI means different things to different people. Understanding a client’s perspective can help agents present LTCI as a meaningful, easy-to-understand product that is a critical piece of the financial planning puzzle. An agent can also help create a benefit plan that matches a client’s personal needs and budget. Even younger clients are showing a greater level of interest in LTCI as they consider different ways to protect their health and financial futures. LTCI doesn’t have to be an “all or nothing” decision. Remember, when a life-changing event happens, having some coverage is better than having none at all.

Q: What product solutions are helping or could help reduce consumer reluctance to use insurance to address the long term care risk?

Glickman: Life or annuity products with LTCI riders may be helpful in providing a vehicle for self-funding lower cost but higher frequency long term care events. Stand-alone LTCI provides catastrophic coverage, or lower cost solutions for only the long term care expenses.

There are several tax-advantaged ways that stand-alone LTCI can be leveraged:

 1) 1035 Exchanges to Stand-alone LTCI: The IRS allows clients to convert deferred tax gains from an existing life or annuity contract into an LTCI plan on a tax-free basis. Despite pre-tax dollars being used for this purpose, LTCI benefits are received tax free and the client may never have to pay taxes on those capital gains. This tax advantage has been available since 2010, yet has not been utilized much since then.

 2) Reverse Combo: Stand-alone products have often offered return of premium nonforfeiture options. When term life insurance is added to this product as an additional rider, the cash flows are similar to the life hybrid products, but with more LTCI coverage and, often, higher death benefits for similar or lower premiums. This is due to the inherent inefficiencies caused by the MEC contract rules and tax corridors rules, which are not applicable to the reverse combo.

 3) Step-rated COLA: There are standalone LTCI product designs emerging in which premiums can be made much more affordable in early years, only increasing in future years at a slow but affordable level, while the inflation protection continues to increase at a compounded rate.

Hughes: Hybrids and linked benefits seem to lessen the tension when it comes to addressing long term care. I still believe that if you want to solve the long term care risk, then LTCI is the right solution. However, consumers like the “But what if I never wake up and don’t need long term care?” This answers that problem, but rarely have I found that a life without a long term care rider product is less expensive than a comprehensive LTCI solution. I still like to bring up hybrid and linked solutions, as the consumer is more relaxed about talking about death than he is about what happens before we die. We might get sick and need some help—then what?

Ritter: Enabled by state long term care partnerships, matching benefit periods to assets brings about affordable premiums. Short term care plans can get the ball rolling with lower cost and simpler underwriting. Hybrid LTCI linked with life or annuities offers liquidity in return for the consumer self-insuring a portion of the risk. Buying LTCI at work offers convenience and potential tax advantages.

Albert: When LifeSecure entered the market, our goal was to create innovative product solutions that were easy to sell and easy to understand. Having just a few decision points for consumers, competitive pricing and simple features, such as our Benefit Bank and simplified issue multi-life product, have made it easier to introduce the idea of LTCI. Again, carriers must continue to look at forward-thinking, modern approaches to long term care solutions to better meet our customers’ needs.

Aside from products, cultivating a better understanding of LTCI is vital. Groups such as Life Happens are doing a great job at helping consumers understand what’s at stake in long term care situations and how LTCI can help. Carriers and brokers must continue to be advocates for our industry and accelerate efforts year-round to help raise awareness of the risks associated with long term care and the importance of this necessary protection.

Fisher: With the addition of more hybrid and linked planning solutions to traditional choices, suitability becomes a key element in deciding which program is best for the client. “Cost-effectiveness” between various products can be opaque, so clarity for agents and consumers hasn’t necessarily gotten any easier. Ultimately, having more choices is better. Agents should avoid the “panacea trap,” where they believe one solution fits all. Differentiating clients by their life stage is a good general rule of thumb, and listening to what they’re interested in will be the key to success.

Q: Partnering with an LTCI specialist is often proposed as a solution for advisors successful with other lines. What suggestions and/or experience can you share about finding and forming a productive relationship with an LTCI specialist?

Hughes: If I could figure this out, life would be grand! This is easier said than done. The advisors who are successful in other lines really don’t want to bother with a product that they perceive as complicated, expensive and often possibly a point of contention when it comes to the relationship they have with their clients. I can’t say as I blame them, but I do think this is something that can prove to be quite successful if the pairing of professionals works out. I do believe the key to success here is expectations. You have to set the right expectations between both advisors. The expectation that not every case is going to be smooth and the expectation that I’m not going to give you my “A” list of clients right off the bat.

Ritter: A large number of brokers with whom we work sell LTCI. However, some brokers tell us they are so heavily focused on their own specialty that they would rather partner with an LTCI specialist. We have been successful in matching up brokers and LTCI specialists. We find that when a broker refers a client to the specialist, the closing rate is very high.

It is essential that the specialist confirm through word and deed that the client belongs to the broker.

It is not uncommon for a broker to write a substantial life or annuity case based on needs uncovered by an LTCI specialist.

Albert: It is important to work with a licensed and LTCI-certified specialist who understands the industry and the comprehensive array of products currently offered. The specialist should also have relationships with at least a few different carriers so the client has options when it comes to underwriting guidelines and product choice.

In short, anyone exploring a partnership should do his due diligence. If you’re looking for a subject matter expert (SME), make sure that he really is a LTCI SME. It’s also important to research the carriers you’re writing with, the type of policies they sell, and to ensure that they work with similar integrity and principles that you bring to your clients.

Fisher: While I’ve always thought that this sort of relationship is a good thing, most brokers I know don’t want any agent to “get their nose under the client’s tent,” so to speak. Also, at this point, I think the day of the LTCI specialist is coming to an end and I’m not sure how many of those who continue in this area are up to speed on the hybrid and linked choices that are out there today. If agents and advisors really want to do the right thing, I believe they should do it themselves or have someone in their office who specializes in long term care planning.

Glickman: The most successful specialists are expert in understanding needs and solutions, and describing them in a simplified and intuitive way to advisors. LinkedIn discussion groups have become a good resource for finding these specialists and vetting them based on their responses. The remaining challenge is splitting commissions in an equitable way, commensurate with the value that the specialists are providing.

Q: What can LTCI specialists do to influence their peers in other lines to address and provide solutions for the long term care risks their clients face?

Ritter: The LTCI specialist must impress upon his peers the importance of incorporating long term care planning into their practices. The problem of long term care funding in America is not going away.

LTCI offers excellent compensation. Since lapse rates are extremely low, renewals can provide consistent revenue for years to come.

Selling LTCI is the right thing to do. A long care event can have a profoundly negative effect on family finances, quality of life and the disposition of wealth. Financial professionals have a duty to discuss long term care planning with their clients, and they must do their best to ensure that the risk is transferred. [AR]

Albert: It’s as easy as opening the lines of communication, whether the goal is forming a partnership or simply promoting LTCI. In order to bring the best solutions forward, brokers need to commit to being collaborative and reaching across the lines of business. Speaking as someone who has held leadership positions in agent trade associations, I know they can also help by raising the profile of LTCI in our trade groups. Considering the growing need for LTCI, which is not going away, we all need to be industry advocates. Starting the conversation and putting the demand for care, caregiver shortages, long term care risks and statistics in relatable terms will make it more tangible for others and raise awareness of the important solutions carriers and agents are offering.

LTCI is a much needed product for many Americans, as we are now living longer than any other generation. If you are not offering this to your clients, then someone else may be. [TA]

Fisher: If a long term care insurance specialist really wants to work with other agents, I think they need to prove that they understand all long term care planning options: traditional, hybrid, linked and annuities. They also need to be very careful not to go beyond the “mandate” that’s been given to them by the referring broker. [BJF]

Glickman: Specialists need to make more of an effort to market their services through speaking and networking opportunities with non-LTCI agents. Education about topics that overlap, such as the benefits and limitations of living benefits, is in great demand and will immediately add value for non-LTCI agents. Also, identifying other sales opportunities such as penetration of the executive carve-out benefit market will help expand the need for specialists’ services. [MG]

Hughes: You really do have to set yourself up as “the resource” when it comes to your peers. They need to see that you eat, sleep and breathe LTCI and keep your finger on the pulse of the industry. LTCI is ever-changing these days, so it is important as an LTCI specialist to be just that—a specialist. Some call it a niche market, but I see it as a specialized field that requires time and energy to stay attuned to what’s happening and how the solutions to the long term care risk can be solved in many different ways. I have found that speaking at local organization meetings with absolutely no intent to sell is a great way to set yourself apart. Be active in your town’s local insurance chapters. Get yourself speaking gigs. Everyone wants to hear about LTCI without being sold. [AH]

Why do tougher underwriting criteria and significantly lower placement rates in traditional long term care insurance create such distress in the brokerage general agent community? We have painfully learned over the past 12 months that it is more difficult to issue and place an LTCI policy today than it was two or three years ago. I understand change is difficult, and no one wants to work a case and not get paid for it. However, insurance carriers have been clear that more “precise” underwriting is an important component of staying the course in a difficult market. It seems to me that addressing this challenge is in the BGA’s area of expertise. Most of us cut our teeth on sub-standard and health-impaired risk underwriting. Why  not accept the current reality in order to create more marketing opportunities?

Inherently Sub-Standard

I began the wholesaling portion of my insurance career about 25 years ago in a brokerage general agency steeped in sub-standard risk. Helping agents with health-impaired clients was our stock in trade. When the agency principal asked me to head up the nascent long term care insurance department, we immediately identified an important correlation between our life insurance and LTCI brokerage efforts. At that time the average age of a long term care insurance policyholder was 67. It was clear to us we were not in a “who has the cheapest premium” environment. We took extra care to identify the prospect’s health conditions in order to propose the best carrier with the highest probability of getting the policy issued as applied.

In 1990 it wasn’t any easier to get an agent to ask about health impairments, conditions or medications than it is today. We spent a great deal of time training agents to ask questions about morbidity risk and advised them that the typical long term care insurance prospect was inherently sub-standard due to their age. It was highly unlikely that any prospect had no medical issues. While the average age of today’s LTCI policyholder has plummeted to age 56, the same holds true. People in their fifties are diagnosed with medical conditions at a much earlier age, and many take myriad prescription drugs that create red flags in LTCI underwriting departments. Today more than ever, uncovering the good, bad and ugly of a prospect’s health before the proposal is prepared will significantly improve policy issue and placement rates.

Helpful hint: Abandon the use of LTCI spreadsheet programs. This encourages selling to the lowest common denominator: price! I guarantee your placement rates will go up if you compel the agent or advisor to come to you for the quote.

Beware of the Prospect Who Wants to

Buy Long Term Care Insurance!

Years of experience has taught me that consumers who call me looking for long term care insurance need special scrutiny. While some have experienced a long term care event with a family member or friend, those looking to purchase may have been advised that they have an  uninsurable condition or been turned down in the past. With this in mind, it is best if agents and advisors initiate the long term care planning conversation, and at a much younger age. With the proliferation of hybrid products today, discussing chronic illness risk should begin when prospects are considering the purchase of any life insurance policy. Premiums are more affordable, and underwriting is generally not as difficult in these situations.

Helpful hint: Always ask the agent or advisor, “Who initiated the request for a quote?” If it’s the consumer, extra care is the order of the day. This information may also lead you to a solution other than traditional long term care insurance.

Clients who have already purchased insurance or another financial instrument from our brokers are the best prospects for long term care planning. People who work with professional advisors are generally in the planning mode. They understand that preparing for unknown contingencies is a good idea. They also have developed a level of trust with the agent. Maybe even more important, most have passed over the river known as “De-Nile”—they know if they live long enough they are likely to need long term care and they’re looking for the most efficient ways to cover the costs.

This means that brokerage general agents must constantly beat the long term care planning drum and work with their brokers to cross-sell existing clients. We now live in an era of a lifetime of long term care planning. Let’s not let consumers find out about long term care risks and solutions when it may be too late for them to qualify for coverage.

Helpful hint: Include a long term care planning idea or new product in every broker marketing communication or sales training meeting. In this way agents and advisors will see you as a center for long term care insurance excellence.

Multi-Life—Simplified Issue

Underwriting—Tax Deductible Premiums

In the traditional long term care insurance marketplace, employer sponsored long term care insurance for as few as five employees is still available. This is individual, not group, LTCI. However, these offerings provide for some level of simplified underwriting, and in our experience 95 percent of all cases are approved quickly and without the challenges of full individual underwriting. Of significance to the employer are tax-deductible premiums and tax-free benefits. Additionally, employers can select, by class, which employees they wish to include in the plan. In today’s world of health care reform, these programs can create an extremely valuable and affordable owner/executive and key person employee benefit.

Hybrid Life Products

It’s been reported that nearly 30 percent of all insurance products now have some sort of chronic illness benefit. Without getting into the weeds of IRC Section 101(g) and Section 7702(b), some of these insurance policies only underwrite for mortality. With this in mind, for prospects who may not qualify for traditional long term care insurance, brokerage general agents may already have the solution sitting on their product shelves. Keep in mind two important points however: 1) field underwriting, in advance of the application process, is critical in determining which product is suitable; and 2) there is a cost to chronic illness benefits in hybrid products, usually in the form of a discounted benefit in an accelerated payment for chronic illness. Full disclosure is extremely important when presenting these products to any consumer. Becoming expert in these products is another avenue to increasing BGA value to your clients!

Helpful hint: For policyholders with existing cash values in older life insurance policies, this is a great 1035 Exchange opportunity.

Annuity Combos with Simplified

or Guaranteed Underwriting

Thanks to the Pension Protection Act (PPA), we now have clarity on the tax treatment of annuity payments in the event the policyholder withdraws funds due to a chronic illness. In short, they are tax-free if the policy is PPA qualified. While the extended low interest rate environment has stunted the development of these programs, there are a few single-premium deferred annuities that provide leverage for the long term care risk. One SPDA, with simplified underwriting, allows the annuitant to acquire three dollars of long term care benefit for every dollar in the annuity. Another gives the policyholder the opportunity to purchase various extension of benefit riders. For the totally uninsurable risk, one SPDA provides nursing facility only benefits and enhanced benefits to pay for long term care. For the right client, many of these options can mean the difference when searching for quality long term care options.

Helpful hint: Mega-dittos on the 1035 Exchange opportunity. Thanks to the Pension Protection Act, annuity holders can “trade in” their old fashioned SPDAs into dual purpose long term care liquidity.

I don’t think there’s any better way for a BGA to attract and solidify relationships with agents and advisors than to provide them with reliable insurance products, tools and guidance for long term care planning.  Far from being a dead issue, opportunities to help consumers plan for needed enhanced liquidity for chronic illness care are expanding, not contracting. While most are rushing to commoditize brokerage products and services, long term care insurance solutions require us to provide the specialized knowledge and hands-on support that built our agencies. There is great reward in helping your clients by helping their customers solve their long term care planning challenges.

Bright, shiny objects catch your attention. With traditional long term care insurance markets in a consolidation and reinvention mode, “the talk” is all about linked and hybrid products. A linked or hybrid product is something other than traditional LTCI—for example life, annuity, critical illness or disability insurance—whose primary purpose is to indemnify some other risk. However, a linked or hybrid product’s secondary purpose is to provide liquidity in case the insured suffers a chronic illness.

Is there a difference between linked and hybrid products? Insurance companies and commentators often use these terms interchangeably. In our marketing organization we use the term hybrid to refer to life insurance products with accelerated death benefit riders (ADBRs). Linked policies have an ADBR and an extension of benefit rider (EOBR).

The fastest growth in hybrid product designs is occurring in life insurance. The underlying product is intended to pay a death benefit, but if the insured suffers a chronic illness he can access some or all of his death benefit while he is alive. ADBRs are now available on term, universal and whole life policies. To be fluent in this class of policies, agents need to learn some new terminology and to understand how these riders work.

Generally, when a life insurance policyholder dies, the death benefit is received income tax-free by his beneficiaries. With an ADBR, the life insurance benefit can be paid prior to death if the insured qualifies for these benefits. How is a death benefit taxed, if paid out while the policyholder is alive? There are numerous Internal Revenue Codes (IRCs) and other regulations concerning this, but the short answer is: When a life insurance benefit is accelerated for chronic illness, it, too, will be received tax-free.

IRC Section 7702(b) of the Health Insurance Portability and Accountability Act (HIPAA) established the tax-free nature of long term care insurance benefits for traditional long term care insurance. IRC Section 101(g) allows accelerated death benefits to be tax-free if they are received because the insured qualifies as a chronically ill individual. Both these sections of the IRC refer to each other, but there are significant differences between Section 101(g) accelerated death benefit riders and Section 7702(b) traditional long term care insurance plans:

 • Section 101(g) assumes the insured is going to die; therefore a terminal illness trigger is always present.

 • In order for accelerated life insurance benefits to be tax-free under Section 101(g), an ADBR must be attached to a policy that is guaranteed renewable for life.

 • Section 101(g) plans do not require a plan of care.

 • Section 101(g) does not require an offer of inflation protection, an outline of coverage or agent continuing education.

In attempting to clarify the IRC on ADBRs, the NAIC has issued Model Regu­lation 620, and the Interstate Insurance Prod­uct Regulation Compact (IIPRC) has issued guidelines. The latter is more significant because it clearly lists chronic illness as a qualification for benefits and allows insurers to get products approved in 43 states in a relatively short period of time.

The IIPRC:

 • Must meet the requirements under Section 101(g).

 • Explicitly lists chronic illness as a benefit trigger. However, the rider cannot be marketed as long term care insurance unless the policy provides an extension of benefits rider (EOBR 45679).

 • Chronic illness must be expected to be permanent, so by implication, it meets the 90-day requirement under Section 7702(b)(c)(2).

 • Expense reimbursement is not allowed.

 • Lump sum benefit must be offered.

Is there a cost for ADBRs? Some companies would like you to believe their riders are free, but smart agents know this is too good to be true. While there may not be an explicit premium for the ADBR, at time of claim the amount accelerated (usually a lump sum) will be discounted based on the insured’s anticipated life expectancy at that time. This method is referred to as a “discounted death benefit” approach and will always fall under Section 101(g).

An acceptable but rare method of paying for the ADBR is referred to as a “lien” against either the cash value or death benefit of the policy. Part of this approach includes interest and administrative charges. This method is exclusive to Section 101(g) ADBRs.

Finally, some companies charge an additional premium for the accelerated benefit, but at time of claim the policyholder will receive a defined monthly benefit such as 1 percent, 2 percent or 3 percent of the death benefit, or a certain dollar amount per month. This type of policy can fall under either Section 101(g) or Section 7702(b).

While linked and hybrid products are an important and growing segment of the long term care planning spectrum, agents need to be circumspect. There is a misconception that hybrid alternatives are more affordable than traditional long term care insurance. Traditional LTCI provides the most premium-to-benefit leverage for coping with a long term care claim. Hybrids are for people who need life insurance and/or who want to make sure someone will receive a benefit if they never use the policy for long term care expenses.

Another concern with hybrid life insurance products is this: If the policy is sold for a death benefit need and then gets accelerated for chronic illness, the beneficiaries will get a smaller death benefit than they expected. The counterpoint is that it’s merely a trade-off of dollars. Does it make a difference if the death benefit is accelerated to pay for chronic illness costs? Maybe the ADBR will lead to enhanced quality of life for the insured and his family while the former is alive. The death benefit is received one way or the other and provides more options to the policyholder.

Finally, the premiums for these linked policies are not deductible as accident and health insurance like traditional LTCI is. Tax deductibility of long term care insurance premiums is a significant benefit for many business owners and should not be overlooked.

Including an accelerated benefit for chronic illness to a life insurance policy is a great idea for clients under 50. The costs are minimal, but the added flexibility provides the insured and his family with valuable choices if a chronic illness occurs prior to death.

Linked life/long term care insurance policies that fall under Section 7702(b) are generally single premium universal or whole life insurance with an ADBR for chronic illness and an EOBR for claims that go beyond 24, 36 or 48 months. These products are primarily marketed to clients age 60–75 with a very specific profile:

 • They’ve considered traditional long term care insurance in the past but are bothered by the question, “What if I never need long term care?”

 • Because of this, they’ve decided to self-insure the risk by setting aside a “rainy day” (sinking) fund to pay for long term care costs.

When you have a client with this profile, it may make sense for them to reposition a portion of their “rainy day” fund into a linked single premium life product, thus leveraging $1 up to $5 or $6 for long term care. If he doesn’t use his policy for long term care, a beneficiary will receive a death benefit that is larger than the original sinking fund, and it will be income tax-free. Also, most of these policies include a return of premium benefit if the insured wants his money back later. These products are a win-win for older, self-insurance-minded individuals.

When discussing long term care planning with your prospect, should you show him every possible product option? No! You’ll confuse him—and yourself. With all these new choices, suitability is the key driver and will primarily be based on your prospect’s stage of life and his “entry point” in the planning process.

Today’s product environment will no longer allow most consumers to do “one-and-done” long term care planning. We are now in the world of a lifetime of long term care planning. Preparation for chronic illness is not just for old people. Each time you sit down with a client you should discuss his long term care exposure and recommend the most suitable product.

Some general guidelines are:

 • Under age 50, life insurance with some chronic illness acceleration features.

 • Late 40s through early 60s, traditional long term care insurance, especially for business owners who can take advantage of premium deductibility.

 • Those 60+ who’ve chosen to self-­insure part or all of their long term care risk should consider leveraging-up their “rainy  day” fund by repositioning it into a single premium life insurance option.

None of these programs are mutually exclusive. Many clients will purchase several different products over their lifetime. We have not come to the end of long term care planning. The journey is just becoming more interesting.

William R. “Bill” Dyess, Dyess Insurance Services

Barry J. Fisher, America’s Long-Term Care Insurance Experts, LLC

Q:What led you to specialize in the LTCI market?

Bill Dyess: In 1983 my former business partner’s mother needed round-the-clock care and, as you can imagine, this was financially devastating for the family. As a business partner, I was involved both directly and indirectly. All told, this family paid out more than a quarter of a million dollars for care. After having seen the financial burden and costs of all the care, I realized my parents were aging too and that this was going to be an issue for many other families who had chronically ill family members. So, in 1985, I started wholesaling and retailing LTCI.

As I learned more and more, I became passionately interested in all the nuances of LTCI products and started actively participating and speaking at different conferences. As time went on, the issues of our aging population began to receive national attention. I was fortunate to be part of this groundbreaking area of the insurance industry. Even after nearly three decades, the LTCI market still intrigues me today.

Barry Fisher: During my time in personal production in the 1980s I handled the life insurance and employee benefits for several clients who owned nursing homes. At the time they asked me to look into LTCI and, candidly, I didn’t think much of the product. It was very limited in scope­—it just didn’t appeal to me.

Then in 1990 I went to work in a life and health insurance brokerage agency owned by Mike Flynn. He came into my office one day and asked me if I knew anything about LTCI. I said “yes,” so he made me the head of the company’s marketing efforts.

When I started my own brokerage agency in 1995, I decided to focus on LTCI because I wanted to differentiate myself from other life brokerage agencies. My byline was “long term care insurance brokerage for life and health insurance professionals,” because I recognized that this product was underserved in the traditional life brokerage environment. In my opinion it still is!

Q: What are the most challenging issues for LTCI specialists today?

Fisher: I think the day of the specialist is over. With significantly higher new business premiums, particularly for 5 percent compound inflation, all agents must learn how to sell less coverage to more people. They also need to recognize that very few people will be able to solve their entire long term care planning “problem” in one fell swoop.

The new strategy will be to do a lifetime of long term care planning that will include traditional and linked products over many years, starting when clients are in their thirties and continuing into their seventies.

Dyess: One of the major issues that I see as a challenge to LTCI specialists is that people in our society tend to have a false sense of omnipotence and, thus, have a hard time visualizing themselves needing long term care­—particularly younger clients. As a result, many people wait until it is too late to buy LTCI.

Educating newer agents about financial markets and using LTCI as part of a sound overall financial plan is important. Selling LTCI is not just about knowing long term care, it is also being able to demonstrate to your potential applicants how it applies to their life in general.

Getting the message out to younger buyers and generating leads is an integral part of being successful as an LTCI specialist. Young people today know they have to plan for their retirement, but don’t necessarily consider LTCI as part of their future. It is our job to get the word out, by learning about the different products and becoming expert in as many as possible.

Besides getting the public at large interested in LTCI products, my other concern is that insurers are becoming more reluctant to stay in the long term care market. The current interest rate environment has taken its toll on product availability. As the economy improves, we can only hope the number of LTCI products will increase.

Q: When selling LTC insurance, a common challenge brokers face is a client’s “I can’t afford it” attitude. What is the best way to get beyond such objections?

Dyess: Something I feel very strongly about is that the majority of people who want to buy LTCI are willing to apply for the coverage; however, the sticker shock often requires that you educate clients in order to reduce their anxiety about allocating the funds necessary for a potential health care need. Creating the value of a LTCI product is an essential part of overcoming objections to the sale.

Understanding how valuable that policy will be if they need care goes a long way in reducing their hesitation. Comparing what they are going to pay for long term care to what they will actually pay for a policy is another way to educate clients about the value of LTCI.

At the end of the day, educating your client that this is a liability nearly three out of four of us face also creates interest and fosters the reality of our personal needs. In our present economy, a lot of people think they can’t afford to buy LTCI, but getting them to believe they can’t afford not to is a more clear and concise objective.

Fisher: Don’t oversell the need, and solve the problem incrementally with various planning solutions that may serve multiple purposes.

Q: What advice do you have for producers who are just entering the LTC insurance market? 

Fisher: They will not be able to be a one-trick pony. They’ll have to have a broad-based knowledge of all of the long term care planning solutions. They also need to work with a brokerage agency that can help them fulfill all of their various training and product needs.

Dyess: Being successful in the LTCI marketplace requires more than just an in-depth knowledge of the products available. Having a multi-dimensional knowledge of financial markets and trends goes a long way in overcoming objections. You project an image of being more than just an insurance agent—you are a specialist in a very particular area of the market.

Understanding and creating the value of a product can’t be emphasized enough. I always find that talking to a person directly about the numbers—what they have actually invested compared to the statistical return on their dollar at claim time—sparks an interest. When people begin to learn the risk that they are taking by not planning for their future, it can be a very sobering experience for them.

Sometimes you just have to let a client digest what they are really planning for. Don’t be afraid if they initially walk away. It is a big decision. I think sometimes inexperienced producers feel they have to close the deal that minute, which I believe scares the client and is not the proper way to sell this product. Teaching clients that LTCI is something they invest in to give themselves peace of mind is something they will ultimately thank you for, rather than be resentful of.

Q: What advice would you give to producers who have been in the LTCI market for awhile?

Dyess: I am constantly amazed at all of the new information out there, and I make it my business to acquire as much knowledge as I can about all the changes in products and legislation. I believe that we must continue educating our politicians so they can assist us by implementing legislation that will be favorable to our clients’ potential long term care needs, such as tax incentives for people who take responsibility and buy LTCI.

We must continue to encourage employers to make LTCI available as part of their employee benefits plans, perhaps even making a small contribution. By using the power of their corporate size to buy down the price of LTCI, employers afford another benefit to their employees. In addition, buying it corporately significantly reduces the number of health care questions asked to get a policy issued. Educating employers about the tax benefits and potential deductions of premiums is a perfect way to start a conversation with an employer client.

Using public forums such as local newspapers, writing blogs and social media are also other ways for long term producers to contribute and to help the public raise awareness about the devastating statistics of the financial consequences of not having LTCI.

Q: What LTC insurance product innovations should producers know about?

Fisher: Real product innovation is just getting started. LTC insurance and long term care planning, as we know it, will be much different five years from now. Carriers are developing product strategies that will cause the insured to share in more of the risk. With this in mind, sell the heck out of what we have now, because the products are not likely to get any better or less expensive. [BJF]

Dyess: There has been some commentary from actuaries around the country indicating that more insurers are looking to get out of the market or, at a minimum, modify benefits. I think that there could be more carriers looking to find a way to limit benefits to the client and compensation to the agent to stay in the market or offer more affordable options for LTCI.

One interesting product model suggested by Robert Yee in his 2012 article, “De-Constructing LTC,” is for LTCI products to adopt a universal life insurance product model. This suggests a movement toward a universal life/LTCI product norm as opposed to our current reimbursement or cash models.

Linked or “hybrid” products have been around for quite some time, but have been used more prevalently over the last five years.

Products of the future that may be entertained by insurance carriers may include a return of a portion of unused premiums to entice more consumers to purchase this product. Other areas of creative financing is the reverse mortgage or the use of IRA/401(k)/qualified money, on the government side, to fund the cost of long term care.

There is a growing awareness in our country that the government simply cannot afford to take care of our aging and chronically ill over long periods of time­—nor can they completely ignore it. Some of these innovations would incentivize consumers to protect themselves using tax-free vehicles and help financial advisors see it as a long term vision for their clients, ultimately making a specialty in LTCI a lucrative proposition for those who know their stuff. [WRD]