L. Nicholas Hogan, LTCP, LUTCF

I saw another presentation proclaiming that asset based long term care/second-to-die life is better than traditional long term care insurance (LTCI).

My position is: Do not stake out your claim, get out your gun and defend to the death that one is better than the other.

If you do, you will not make as many sales as you would if you kept an open mind and recommend what is best for the client based on their circumstances.  Do not be afraid to objectively offer both and let the client choose between “yes” and “yes”.  Why be a one trick pony and lose half of your sales?

When one does a deeper dive, the combo product can fall short when compared to a traditional LTCI plus a separate second-to-die life contract.  However, even though this may be factually correct, it does not change the reality that some clients are more comfortable with traditional while others prefer asset based.  Sell both!

Table 1 represents what we were shown as “proving” why asset based is better than traditional LTCI. The presenter compared asset based to traditional LTCI stating:

1. Both traditional and asset based pay a monthly benefit of $7,500 per month per spouse.

2. The traditional pays up to $450,000 per spouse vs. unlimited benefits for the asset based.

3. There is $187,500 of second-to-die life insurance which would be reduced when long term care benefits are paid until 100 percent of life benefit is gone. (NOTE: with some other companies there is a 10 percent residual death benefit).

4. The clients would have $56,884 of guaranteed cash value after 15 years.

5. They ended with, “For $1,345 more look at all you get—life insurance, cash value and unlimited benefits.”

What was not explained in detail was:
1. There are less expensive traditional policies on the market.

2. When long term care benefits are paid out, cash value and death benefit are both proportionately reduced by the amount of long term care benefit paid out. Clients are “self-funding” long term care costs from their cash value and life amount first.

3. If clients remove 100 percent of cash value from the policy they no longer have any life insurance or long term care benefits left as the policy would be terminated.  One might ask, “What is the real benefit of having this cash value?” 

4. Nothing prevents one from buying a separate second-to-die contract with the difference in premium. 

In table 2, I show a stand-alone traditional LTCI policy plus an optional second-to-die life insurance policy:

Here is how table 2 was modified:

1. Used a better priced traditional policy.

2. Increased the benefit pool from $450,000 to $750,000 per spouse.

3. Added a shared care rider

4. Numbers two and three increase couple’s total pool to $1,500,000 which would last a minimum of 8.3 years each or 16.6 years for one spouse.  From a practical view this is virtually unlimited benefits.

5. Total cost for traditional LTCI reduced to $3,585 leaving $2,388 that client can use to buy a second-to-die policy.   

If your client chooses to purchase a stand alone second-to-die policy, in this example the face amount would be $293,600.  In addition, the $293,600 is not reduced by any long term care benefits paid.  Your clients receive both the long term care benefits plus the full face amount of the life insurance!  

A few other points:
With the traditional plan there is no requirement to buy the second-to-die policy; the client can simply save or invest the $2,388 as they wish.  In addition, premiums on traditional LTCI may be deductible through businesses or on a client’s personal tax returns.  Plus, this traditional policy includes: a future purchase option allowing clients to add coverage if desired and a cash alternative allowing for greater flexibility.

Do not let your preference, or should I say bias, get in the way of giving good solid complete advice to your client and letting them choose which way to go.  

Now before you think I am pushing traditional over asset based, I am not. I am simply leveling the comparison. When you are helping your client determine whether combo/hybrid or traditional LTCI is a better choice for them, the answer will depend on their circumstances: Health, assets, experiences with family members, the ability to deduct premiums, Partnership Plans and other reasons.  Learn the differences between the products so you can recommend what is best for your client.  The fact is:  Some long term care coverage is better than none at all.  No matter which type is appropriate—have the long term care discussion!            

Before getting into some examples of which kind of client might prefer one type over the other, let’s discuss possible rate increases on traditional policies.  New research is out from the Society of Actuaries Think Tank for Long Term Care Insurance. Their report states that traditional policies issued in 2014 or after have a 90 percent chance of not having future rate increases. And for the 10 percent that might, they expect the rate increase to be only eight to 10 percent.  Why? Companies have accumulated the information they need and have re-designed their policies appropriately.

Carrier product design changes that have taken place over the past several years to stabilize rates for traditional LTC include:
• No longer offering unlimited benefits.

• Assuming a zero percent lapse rate and  a much lower rate of return on investments.

• Eliminating “Unisex” rates except for simplified issue multi-life.

• No longer offering a five percent compound rider or charging substantially more for this rider.

Examples of When Asset Based or Traditional Might Be a Better Fit (there are always exceptions):
1. A couple in their fifties in good health with between $250,000 and $500,000 in liquid assets.
Traditional.  Partnership is very important to couples with modest assets and combo/hybrid cannot be Partnership qualified.

2. A client age 67 with $700,000 in liquid assets and has previously declined to buy traditional LTCI.
Asset Based. In fact this is probably the “perfect” client for combo/hybrid.

3. A business owner that controls a C-corp.
Traditional.  Although he may have a lot of assets, premium is 100 percent deductible through the C-corp.  Consider a 10-pay and do not throw away the tax savings.

4. A couple whose grandmother just got a 40 percent increase on her traditional LTCI policy.
Asset based. If the couple has assets.

5. A couple whose grandfather has collected long term care benefits from his traditional LTCI policy.
Traditional.  Probably what this couple would feel most comfortable buying.

6. A business owner that has assets and also has health issues.
This could be either.  A couple of asset based policies may work if they have simplified issue.  Or, a better way to go may be simplified issue multi-life LTCI, which is a traditional policy with only six underwriting questions.

Conclusion:
Combo and traditional LTCI are both excellent products!  By knowing the differences agents can talk to many more clients about long term care planning.  Offering both, many more policies can be sold.  Most important—the client wins and the agent wins!

Remember—if your clients are not allocating some assets to cover long term care costs, they are allocating ALL of their assets to cover long term care costs!

Happy selling. 

Q: What led you to specialize in the LTC insurance market?

Debbie Dale: I started out in the LTC insurance market not so much by choice but because I found a position with North Star Marketing in their annuity and LTC insurance division. The more I learned about and understood the product, the more I realized how gravely unprepared people are in this country.

My grandfather passed away and left my grandmother with what he thought was a more than adequate estate. She had his pension, Social Security, life insurance, some annuities and a house that was paid for. Unfortunately, she also had some serious health issues that did, in time, require long term care and, despite my grandfather’s planning, long term care is one thing he didn’t know to plan for. My family was among the fortunate ones, because Grandma passed away within months of spending her last pennies. That’s when I knew I wanted to be an LTC insurance specialist.

Nick Hogan: Passion and profit are the two items that led me to specialize in marketing LTC insurance.

As with most of us in this business, LTC insurance is very personal. In my case my mother, born in 1908, was past insurability before the LTC insurance products we have today were even invented. She wound up spending 14 years needing long term care. My brother, sister and I took care of her at home for seven years, followed by four years in assisted living and three years in nursing facility care.

As my parents were not rich, we had the duty of systematically “bankrupting” my mother so she would qualify for Medicaid. In addition, due to the nursing home misfiling paperwork, my brother and I had to personally pay more than $7,000 for two missed months of Medicaid benefits. That hurt.

My sister had it rough, in that she performed most of the care for our mother at home and had the task of trying to find a Medicaid approved facility that was clean and properly staffed—which was not an easy task.

With LTC insurance, the income is outstanding. First year commissions are very good; however, renewal commissions are the real profit for an agency or producer. No other insurance product has a lower lapse rate than LTC insurance—almost a 99 percent persistency from date of purchase to date of death—and renewals continue until a claim is made or the insured dies. Why? Once issued, you cannot pry LTC insurance out of a client’s hands, because they understand the true value of the product. Finally, there is very little service work for LTC insurance compared to any other insurance product.

Q: What are the most challenging issues for an LTC insurance specialist today?

Dale: The ever-changing marketplace with companies leaving. It can be daunting to try and keep up with each company’s product offerings and if, in fact, they are even in the business.

Hogan: First let me say that challenges are an opportunity to modify your practice to make it better.

The first challenge is to ask, ask, ask. The fact is, consumers are way ahead of most agents when it comes to LTC insurance. Consider this: The largest seller of LTC insurance surveyed clients who purchased LTC insurance in 2011. One of the many questions they asked was: “When you went to learn about LTC insurance, did you approach the agent or did the agent approach you?” The response was that 83 percent approached the agent and only 17 percent were approached by a broker to buy LTC insurance. Wow!

It is true that several companies have left the market and policies are being adjusted so they are not as underpriced as they have been. Policy provisions such as unlimited benefits and limited pay options are being changed or eliminated. In addition, first-year commissions are being lowered, but renewals are holding.

On the positive side, multi-life sales and combo sales are exploding. Brokers are also learning to design their own combo products by combining a traditional LTC insurance policy with a smaller life policy to return anticipated premiums at death so the client receives both versus the either/or benefits of many combo products.

The most important thing is that the long term care problem is not going away—it is only getting more critical as Americans’ longevity increases.

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?

Dale: You must talk about the problem and offer a solution. When the focus of the interview becomes premium, an agent is on the verge of losing the sale. At this point the prospect must be led back to the problem by saying, “Yes, the cost of LTC insurance is high, but so is the cost of confinement.” At this point the prospect must be presented with a comparison of the LTC insurance premium to the cost of long term care. Once the prospect sees those numbers, he will understand that while LTC insurance is expensive, the cost really is quite small when compared to the large cost of long term care confinement.

The truth is that long term care insurance is expensive, but when you compare the premium to the ultimate cost of care, almost everyone will choose the smaller number.

There are several tools available that can help calculate the future benefit based on a cost of living adjustment and, as mentioned, the numbers can be quite powerful.

Hogan: There are three items that really help brokers deal with this issue:

 1. The most important one is that you should not believe this falsehood. The fact is that LTC insurance is the least expensive insurance product on the market. Some may find this statement hard to believe, but it is true.

For decades all agents have understood that permanent life insurance costs about two cents per dollar of protection per year. For example, a whole life or guaranteed universal life contract for a 60-year-old non-smoker rated standard costs about $10,000 per year for $500,000 of coverage. An LTC insurance policy for that same 60-year-old (standard, no discounts) with a $500,000 pool of money and a $5,000 monthly benefit costs about $2,000 a year, and for a monthly benefit of $10,000, the annual premium is $3,600. Compared to the risk, LTC insurance costs less than virtually every other form of insurance.

 2. We work with a lot of brokers and the one thing we consistently find is a belief that it is necessary to sell all the LTC insurance needed at one time. Approaching a sale this way can make the client feel that LTC insurance is unaffordable. Present what fits into the budget; additional coverage can be presented in the future. In addition, many brokers concentrate too much on price and not enough on benefits. For a copy of my article, “Top 10 Benefits of Owning LTCI Today—Assuming You Will Never File a Claim,” email me.

 3. The following is a presentation (The Three Premises Approach) we give our brokers to use with clients. It directly addresses the “affordability” issue.

There are three premises from which I work and I want to make sure you’re in agreement.

 1. I hope that you can get a policy, have it for the rest of your life, live to be 120 or so without ever getting sick, and simply go to sleep one night and not wake up. If that happened, would that be okay with you

 2. Some coverage is better than no coverage at all. Do you agree with that?

 3. You should never buy more coverage than you can comfortably afford. Agree?

Okay, then it’s my job to design a policy that will maximize the benefit for you with the amount of money you can afford to budget. In order to do that, I need two pieces of information: What do you have in the way of assets that you want to protect, and how much can you afford to set aside on a monthly basis to protect those assets?

The first premise eliminates the objection of “what if I never use it?” If the client agrees to the second premise, he has agreed to buy LTC insurance. The third premise creates a premium commitment in relation to “the assets the client wants to protect.”

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

Dale: If possible find a mentor. I have had some fabulous mentors in my career, and their input and advice has been invaluable. Also, partner with a knowledgeable brokerage general agency that specializes in LTC insurance.

Hogan: First, make sure you have all of your LTC insurance certifications completed so you can legally sell LTC insurance.

 • Next, do not buy leads because they normally do not work.

 • Forget about any preconceived ideas you have about who might buy LTC insurance. Upon entering the LTC insurance market, too many brokers think they need to work with a new demographic—one with which they have no experience. What I recommend is that you work with an organization that will help you determine your natural markets—where LTC insurance is easily sold.

We refer to this as “working within one degree” from what you are currently doing. For example, if you work with small businesses, then have someone show you how to sell multi-life. If you have access to property/casualty agents, accountants, attorneys, etc., the same can be done. Perhaps your natural market is single women age 45 or older, or ethnic groups.

Understand or have someone explain the “hot” markets: couples 40 to 65; single women older than 40; financially sound businesses with three or more employees; clients with $700,000 or more in assets who are age 67 to 75 and have previously declined to purchase traditional LTC insurance.

 • Invest in your business by educating yourself—sign up for an online training course. We can refer you to one that has an annual subscription cost of less than $20.

 • You can open an LTC insurance case 100 percent of the time in your natural market by using the Nine Golden Words: “Have you purchased your long term care insurance yet?” These nine words can be asked almost anywhere and will solicit one of three responses.

The first response you do not want to hear is, “Yes, I bought it six months ago…I did not know you handled that.” Luckily, you will only hear this about 8 percent of the time.

Second, the response is something silly or ignorant such as: “That will never happen to me,” “I will shoot myself first,” or “I changed my kids’ diapers so they can change mine.” Years ago we heard these types of statements frequently; however, today we rarely hear them. The reason is that more and more boomers are dealing with their own parents. When a response like this occurs, congratulate yourself because you just saved yourself a two-hour interview that would not result in a sale.

Finally, most of the other answers will be positive—“Yes, I know we need to do that,” “My husband and I were just talking about that,” or “Our financial planner recommended that.” However, if you hear “Isn’t that expensive?” you already know how to answer that one!

Q: What advice would you give to producers who have been in the LTC insurance market for a while?

Dale: Stick with it! This need for long term care is not going away; in fact, it is going to become bigger as the boomers age. You are in the position to help numerous people protect their assets. I firmly believe that LTC insurance is here to stay—yes it will continue to evolve, but it is not going away.

Hogan: First, if you are doing well, congratulations! Keep up the great work, America needs you, thanks.

If your production is down, do not get discouraged. I can tell you LTC insurance sales are beginning to roar back. Our broker’s results in 2012 were way ahead of 2011, and 2013 is starting out very strong. We are seeing huge increases in multi-life, sales to younger people, and combo sales. The support of all the companies in the market is great, and all seem to be very committed to LTC insurance.

If you have not already teamed up with a financial planner, consider it. They typically do not like selling LTC insurance; however, once you explain what they have to lose by not having you take care of LTC insurance for their clients, you have a good chance of working with them and here is why that is true:

First, if they get paid a percentage of assets under management, they will lose substantial income when their client needs to liquidate monies to pay for long term care. For example, if they make 1.5 percent and their client liquidates $3 million, they lose $45,000 per year—over 20 years they will lose $900,000 in income.

Next, they will limit their E&O exposure from their clients’ families suing them for not having the parents buy LTC insurance and, thus, destroying their inheritance.

A recent survey by one insurance company found that if a planner had life insurance and/or LTC insurance as part of their client’s plan, there was a 93 percent chance of keeping the assets under management once that client died. If, however, there was no life and/or LTC insurance in the client’s plan, the monies were frequently moved to one of the children’s financial planners.

The best time to sell LTC insurance is now!