Peter Caneer

Thomas Archer, Elite Marketing Group

Peter Caneer, Carroll & Associates, Inc.

Dex Umekubo, Producer’s XL

Q: What do you find most exciting about the life insurance business?

Thomas Archer: The industry is always changing and evolving. While it can be frustrating from time to time, this also keeps our business exciting! I’m always amazed that as tax laws change, compliance, reserving and regulations change, the industry and our carriers find ways to respond and adapt. I always tell our employees, “If you don’t like something, don’t be too upset. It will change at some point.”

With 50 percent of middle class Americans without coverage, the opportunity is unlimited!

Peter Caneer: Being excited about our business today doesn’t mean blind optimism. It does mean realizing all the improvements needed—as well as the potential benefit to everyone if we’re successful. My main concern isn’t about the dwindling number of agents and the ages of those remaining (now average age 60) but more about the consumers we could help, and figuring out how to help them. Industry organizations and insurers have done what they felt was best for them for the last 40 years, and what we now have, both in numbers of agents and their competency, is the result.

We (and insurers) will find ways to reach consumers regardless. Some of us are working successfully with high-tech websites and online quoting and applications systems that really do work. And while the number of pure life agents is smaller, we can also work very effectively with financial planners and property/casualty agents who can all bring life insurance, LTC insurance and retirement products to their clients with the right help.

Dex Umekubo: What I find exciting  about the life insurance business is the opportunity for financial security our industry provides to so many Americans. Most people, even some in our business, don’t realize the value our industry brings to our economy and to the public. Our products provide more than $1.5 billion a day in benefits versus the $1.9 billion that the government provides. We provide 20 percent of all the long term savings in our country. We provide 75 million American families with protection and peace of mind. That said, there is still a huge marketplace for people who want our products, so I think it is just a matter of getting out there, seeing people, telling our stories and helping people find financial security with the products we have to offer.

I also encourage all readers to become active in AALU, NAIFA and other industry associations, and get involved in the legislative side of our business.

Q: What about the life insurance business most concerns you?

Caneer: I’m more concerned about financial illiteracy (and not understanding what risk is all about) on the part of the public more than the aging and small agent force. As one our better general agents in Miami says, “I can’t do anything about that.” Agent concentration on cheap product rather than client solutions is also a concern. This preoccupation with only low-cost product is predominant—with some radio personalities, who only advise buying term insurance from endorsed providers, yet have website information about life insurance that is three years out of date.

Many risk problems for middle class Americans can be fixed with simple solutions like hybrid life with both critical and chronic illness benefits (particularly critical). Annuities with LTC riders are also terrific tools. But definitions for claims triggers are important, since a chronic illness accelerated benefit might be dependent on the condition being “permanent,” or could require the client to be in a facility. This is where a good BGA can help, doing the research to make sure product performance and expectations are clear. Some of the better hybrid products should also be provided as employee benefits—a new area to explore.

We have an agent force that needs more medical and financial underwriting training, plus a lot more tax knowledge. Great companies in the past did this training, but now it’s only available from a few BGAs who have the ability and inclination to spend their time with new agents or with P&C agents and financial planners who are curious and can learn at least the basics.

Umekubo: One of my biggest concerns about our business is the feeling that we have spent far too much time telling people (and brokers) what life insurance is and not what life insurance does. I am really concerned about this trend within our business. Many agents have never delivered a death claim. They have been taught all about why their products are better than the next guy’s. They focus their pitch on the illustration they’re showing, mesmerizing the prospect with projections that are sometimes “too good to be true” and never really focusing on the need for the insurance.

As a natural adjunct, I am concerned for those agents who have made a decent living churning blocks of business. Replacement activity will eventually dry up—a person’s life insurance can only be replaced so many times. Agents need to get back to basics and sell solutions to problems rather than the next best illustration, and we need more carriers and BGAs committed to that process.

Archer: What about the life insurance business most concerns me? Probably the same thing that concerns most BGAs out there: Where are new agents going to come from? With only a handful of career companies turning out licensed insurance professionals, who will be our future producers? Of course we, like everyone else, are looking to alternative distribution sources such as banks, wire houses and P&C agencies. With shrinking margins, those channels present their own challenges. The bigger problem, in my opinion, is that this is creating a severely underinsured American public. As the number of life insurance agents has decreased over the last two decades, you can see that there is a direct correlation to the decrease in the amount of life insurance owned by American families.

Currently more than 30 percent of American households have no life insurance at all, let alone enough life insurance.

Q: What new product twists or legislation do you believe producers should be aware of?

Umekubo: I think the expansion of interesting riders and linked benefits for life products is truly a game changer. I think some of the riders (such as income riders, periodic payment of death benefit proceeds) and the linked benefit riders (long term care and chronic illness) are really ways of “getting off the spreadsheet” and selling value instead of price. I also think that producers are getting smarter and perhaps a bit more cynical about some carriers’ illustrations that project performance that might be a bit beyond the realm of real possibility.

On the regulatory and legislative front, I think we’ll continue to see product re-pricing due to the impact of long term low interest rates on our industry. As a member of AALU and Past Government Affairs Chair for NAILBA, I have spent a lot of time on Capitol Hill “telling our story” so that the benefits we provide American families may not be underestimated, stressing the importance that our products maintain their current tax favored status. As an industry we must continue to explain that the inside build-up of life insurance is wrongly labeled as a “tax expenditure”; that life insurance is purchased with after-tax dollars; and that gain on the inside buildup should not be taxed until constructive receipt of that gain (like any other property) upon surrender of the contract.

Archer: With our aging independent life sales force, life companies are looking for ways to make a death benefit contract more attractive and easier to sell. Several years ago, most life carriers added a terminal illness benefit rider—to advance part of the death benefit during someone’s lifetime. Now many lifetime benefit riders from critical illness to long term care to money-back features give a lot more sizzle to our old, outdated contracts.

On the legislative side of the ledger, life insurance is unique because both state and federal governments allow an insurance contract to have very favorable tax treatment. With the growing deficits of our nation today, all sources of tax revenue and tax breaks are being studied. Tax-deferred buildup of cash value, the ability to create an immediate estate “tax free” for beneficiaries and the favorable untaxed withdrawal features are all under review. What other asset is not subject to creditors or lawsuits? State of Texas (and others) benefit.

Caneer: Hybrid products are, of course, number one—especially when the economics also make them very affordable. Agents who really want to make money and help clients would be very successful if they concentrated on just that one idea, especially with so many term policies initial guaranteed rates coming to an end in the coming years. Review and inclusion of living benefits in products for clients’ early retirement years is critical to protect retirement nest eggs and prevent real estate and investments from having to be sold at the wrong time. Term coverage to ages into the early to middle 70s with living benefits solve a real social and economic need.

In addition, understanding the ugly federal government’s lurking regulations (such as IRC 101(g)(5) and IRC 101(j) that make business insurance taxable) is critical to dealing with business clients. Transfer for value tax traps are always out there, too, and agents working locally can help prevent tax disasters. The alternative to good local advice, of course, is having a home office customer services person actually process a request with tax pitfalls or having a sales jockey in an internet operation 2000 miles away try to help without knowing anything about the tax code. Of course neither companies nor agents can give tax advice, but knowing the basics can help business clients avoid disasters like taxable life proceeds. Single premium par whole life contracts with living benefits for critical and chronic illness with good cash growth and very early liquidity are good products now, as well as hybrid annuity and LTC products. They will probably remain viable for a number of years, since interest rates are expected to remain low.

Q: What advice about building an insurance business do you have for producers?

Archer: Technology today allows consumers to run their own rates and plans and make purchases online. How can the agent survive? People in general do not realize how important a beneficiary designation is. They may not realize how important the convertibility feature is and what contracts are available for conversion. I compare the online life insurance purchase to that of preparing your will online—omission of one small item could change everything. The agent continues to provide vital service in the planning process.

Producers today may consider assisting people with the Affordable Care Act in order to build clientele. This is the first time in history that a person who ignores the purchase of insurance will be forced to pay the IRS a penalty. [TA]

Caneer: My advice to agents who want to help clients and make money is simple: Pick four or five things you really like. Don’t just play on the cheaper rate field. Look at business insurance issues (especially tax related), living benefits, tools such as income payout options instead of lump sums, and medical underwriting for major areas such as diabetes, cancer and coronary artery disease. Learn as much as you can, especially about field underwriting. In the near future underwriting changes might even impact the actuarial assumptions in current products, especially annuities.

Partner with a general agent with dedication to education and service, particularly if backed up with an educational “academy” (our national marketing group has an “academy” devoted to this very thing) that makes learning easy. Agents should realize that many clients are becoming “orphans” every day and no one is reviewing their coverage. This is a great opportunity.

There are millions of potential buyers in their 40s and 50s who’ve bought life insurance at least once before and whose initial term periods will soon come to an end. Who will they call? Will anyone call them? Will their insurer reach out to them? Probably not. We have a system that costs product manufacturers more than the customer’s first year outlay for a product that could be on the books for 20 years…or a lifetime. Is it any wonder why policies aren’t serviced? Many of these policyholders are now uninsurable and conversion is their only option, but who’s helping the orphan clients to make these tough decisions? Perhaps BGAs should go through their files and see which clients appear to be orphans—and just deal with it themselves. I know some are doing this.

On the LTC insurance side, the future trend will be for simpler, plain vanilla products that are affordable. This may open up the markets more. The industry leaders will spend a fortune on branding to coordinate with states for partnership plans.

And, finally, there are millions of baby boomers with kids in their businesses that will need help transitioning. But without planning and insurance, bringing sons and daughters into the business certainly does not ensure their future success, nor that of the business. Business clients, in particular, need advice as they try to transition from one phase of their lives to the next. People giving that advice really need to be experts in business insurance planning. [PC]

Umekubo: My advice about building an insurance business for producers? Find a good mentor. I could not have made it, or been blessed with the good career I’ve had ( hope it is not over yet), without those who have helped me along the way. I have a great business partner (John Rupright) who founded our agency. We’ve been together in business since 1984 and been partners in our agency since 1988. You really need to connect with others who are willing to help you, guide you and to have as a “second opinion” to make it in this business.

I also suggest education (I just returned from my fifteenth SFSP Arizona Institute) to increase your skills and expertise. There is so much to learn about our industry, and I truly believe that the producer with the most knowledge wins. Work on your CLU, ChFC or CFP. Commit to being a professional. It’s worth it!

Lastly, commit to seeing people! You can’t help them if you don’t “see ’em!” Get out of the office. Get out from behind your desk and tell people your story. Mine hasn’t changed in 35-plus years—“I help people with two financial problems: dying too soon and leaving their loved ones financially ruined, or living too long and running out of money.  Can I help you with those two problems?” [DU]

Obscure tax laws and new life insurance products with special features have the potential to create some tax time bombs for the unwary business owner. We’re not talking about some small deductions disallowed on business life premiums paid. We’re talking about full-blown income taxation of the entire insurance proceeds at time of claim. And once a claim occurs, you can never go back and fix it. What’s done is done.

This is an important reason why agents in the business marketplace need to have the support of a general agent who thinks outside the box, is familiar with products from a number of companies, and considers issues that aren’t just found on the company brochures. Health insurance agents, especially with the Affordable Care Act becoming law, want to rapidly contact their group clients (business owners) about life insurance for more market penetration and new sales. It’s important that they have maximum support in these dangerous tax waters.

Let’s look at a few examples of how your clients’ plans can potentially blow up. After you read these examples, you’ll want to make sure your clients’ plans are set up properly-it’s easy. However, the consequences for mistakes are horrendous.

Bruce is age 56 and brought Sue, age 49, into his law firm as an equal partner four years ago. They have a stock redemption agreement with all the typical provisions and triggers for buyout in case of disability, at voluntary withdrawal or retirement, and upon death. They each carry $1 million of inexpensive term life insurance to fund the agreement should one die; in addition, they have disability buy-out insurance.

So far, so good­-in fact, this is a situation better than most. They have funding tools in place. And, of course, everything is fine until something happens.

Example Number 1: Taxation of Proceeds

Did Bruce and Sue comply with IRC 101(j) effective August 17, 2006? If they didn’t, all of their insurance is taxable income at the time of claim.

The Pension Protection Act generally provides that death proceeds from business insurance policies issued after August 17, 2006, will be taxable income; however, when specific employee notice and consent requirements are met and certain exceptions apply, death proceeds can still be received income-tax free.

Note that they’re only safe where the insured employee receives notice of and consents to the insurance in writing prior to policy issue. In addition, your business owner clients need to include IRS form 8925 each year with their income tax returns. If you’re seeking some tax advice regarding your business, there are lots of reputable companies that can help you. When it comes to tax, it’s better to be prepared!

Example Number 2: Taxation of Proceeds

The corporation (a C corporation) pays the premiums and deducts them as a reasonable business expense. After all, it’s business insurance, right? Wrong. Premiums are not a deductible expense if a corporation is the direct or indirect beneficiary of the policies. Deducting the premiums could easily make the entire $2 million subject to income taxes. Plus this arrangement cannot be considered “group” insurance and deducted that way, either.

Example Number 3: Taxation of Proceeds

Everything’s fine until one day Sue is diagnosed with a particularly nasty form of cancer. It could be fatal, but the doctors think there is hope. Bruce calls you, and you tell him that the insurance is in place and it has a provision to allow the insurance company to release up to 100 percent of the proceeds early just in case the doctors give her less than a year to live. Bruce is relieved and thinks it’s great to have this ability to buy Sue out early enough to put a lot of money in her hands. It might even improve her chances for survival.

Not so fast! From 2003 to 2009, the IRS issued several private letter rulings (PLRs) involving critical illness and terminal illness riders on life insurance policies. Section 101(a)(1) says that life insurance received after actual death is income-tax free to the business and IRC 101(g)(1)(a) says that benefits accelerated under a terminal illness (accelerated benefit) rider are treated the same way as if death had occurred. Is Bruce safe if he gets the million bucks if Sue is found to be terminally ill? Let’s assume you didn’t mention the potential problems and just said it was a “good thing it was there.”

Of course, with the IRS code there are always exceptions. Here’s the exception in the code just hiding and waiting for you. Section 101(g)(5): “…shall not apply in case of any amount paid to any taxpayer other than the insured if that taxpayer has an insurable interest in the life of the insured, by reason of the insured being a director, officer, or employee of the taxpayer or by reason of the insured (that’s Sue) being interested in any trade or business carried on by the taxpayer.”

If Sue isn’t going to make it, Bruce had better wait a few more months until she passes away. Taking the benefits from the insurance company a few months early might leave him with a million dollar legal contract to fulfill. But the IRS will take a huge chunk out of that, leaving Bruce with a heck of a shortfall he still has to pay. Probably a $350,000 mistake. Is your E&O up to date?

Example Number 4: Taxation of the Proceeds

Same problem as number two, but this time Bruce and Sue have some excellent universal life policies funding their agreement. You said it was the best stuff around, since the top-rated company also allowed the death benefits to be accelerated for long term care problems at no additional cost. The only kicker is that the condition has to be permanent.

Now, it’s Bruce’s turn. Bruce has had mild Parkinson’s disease for years, and while it’s progressed, he has still been able to work. Now the disease has developed into a serious problem that makes continuing to work difficult for Bruce. In this case, if the insurance company releases the insurance money to the corporation to fund the buyout, will the corporation receive the money tax free?

No, again, for the same reason as in example number two. “This subsection (to the exclusion from income tax) shall not apply if paid to any taxpayer other than the insured if that taxpayer has an insurable interest in the life of the insured officer, director, or employee…”

Example Number 5: A Good Story for a Change

Let’s say that Bruce and Sue have those million dollar policies and Bruce did die. Now Sue’s alone and she considers the value of her million dollar term policy with a great price on it and 16 more years of low guaranteed premiums. She doesn’t need it corporately anymore, but she thinks it is a super deal for her personally.

Another exception to the rule: Sue can transfer ownership of the corporate policy to herself with no transfer for value problems. She can then appoint her own personal beneficiary(ies) and pay the premiums personally.

Example Number 6: Taxation of Proceeds

Let’s say that Bruce and Sue are in great health, but Bruce decides it’s finally time to retire and move to the coast. The remaining nine years left on his term policy are a great deal for him, and he knows he can transfer ownership from the corporation to himself and appoint his wife as beneficiary. But Sue says, “Not so fast, that policy has a value and the right thing to do is pay the corporation for the last annual premium that was paid just three months ago.” Bruce reluctantly agrees, writes the corporation a check for $1,800, and changes the ownership to himself.

Is everything okay now? Could be. Purchasing any corporate asset for less than fair market value will look like a disguised dividend and could create additional tax liability. A form 712 should be requested from the insurance carrier just to be sure.

Example Number 7: Capital Gains Taxes

Bruce and Sue have a corporate stock redemption agreement and have fully funded it with life insurance. They really think the value of the law firm is $2 million. They want a clean arrangement and they want their families to get the maximum dollars possible whether they die or live.

Are there ways that the insurance could have been structured differently to provide more value to each of them? Probably not with the entity buyout arrangement. Of course, another problem with a corporate buyout is that the survivor doesn’t get a stepped-up cost basis at the death of a partner. If the surviving partner sold out later on, the capital gains taxes on a million dollars won’t be a trifling amount, and who knows what the capital gains tax rates will be in the future?

Bruce and Susan might consider a cross-purchase agreement instead, with cross ownership and cross beneficiaries for the insurance. The survivor would get a stepped-up cost basis and could avoid capital gains taxes later on if he sold out.

Another potential issue with corporate stock redemptions to always consider is whether a C corporation could owe alternative minimum taxes; of course, a cross-purchase arrangement would avoid that entirely.

Unfortunately the issue with the chronic and terminal accelerated death benefits in a cross-purchase agreement would still remain.

Using Living Benefits to Enhance Financial Security

If Bruce and Sue were intrigued by the power and possibilities of accelerating their life insurance benefits for personal coverage, all the benefits could be received income tax-free if the insurance company allowed them to accelerate the benefits for long term care or for critical illnesses such as cancer, heart attack, stroke, Lou Gehrig’s disease and more.

In a C corporation, as long as the amounts spent for coverage are reasonable, they could each load up on personal insurance, have their C corporation pay for it and deduct it. They would pay income taxes each following year on the premiums only.

Since Bruce and Sue did have long term care insurance, they realized that even at their younger ages they had exposures to risks that their regular insurance didn’t completely cover. They liked the idea that, while the Affordable Care Act was going to eliminate some of their coverage, increase their premiums, their deductibles and their co-pays, their personal life insurance could provide hundreds of thousands of tax-free dollars to them (not just “reimbursement” dollars), even for things like experimental treatments or treatments overseas where their insurance provided nothing at all.

Their life insurance would give them tax-free cash in a number of ways they didn’t have to die to use:

 • If they were diagnosed with a critical illness such as cancer, had a heart attack, stroke or kidney failure, or needed an organ transplant.

 • If they were diagnosed with Alzheim­er’s, dementia, or couldn’t perform two of the normal six activities of daily living (eating, bathing, dressing, toileting, transferring or maintaining continence).

This coverage could help close the health insurance gaps under the Affordable Care Act, and could pay out hundreds of thousands of dollars tax free, regardless of whether disability insurance paid out or not. However, if accelerated benefits were being paid out for a chronic illness where IRC 101(g)(5) wasn’t an issue, they would still be taxable if they exceeded the per diem (or per annual) payouts established by the IRS; however, they would not be taxable if less than this or for actual costs incurred by the policyholder for long term costs actually incurred.

Remember that insurance companies do not provide tax advice. The main purpose of this article is that you need to be a source of competent, ethical advice…especially at claim time. Of course, we are not attorneys nor are we providing tax advice here, just our understanding of the tax pitfalls that could easily occur if clients aren’t paying attention. Each client should seek his own counsel.

Your clients should find out exactly what they have now. We strongly suggest that you recommend a simple review of business coverage and agreements to make sure everything is in shape, so that their insurance is owned and structured to best meet their business or personal needs. A review such as this will allow you to position yourself as an expert, and may uncover potential sales, conversions for people with health changes, and the potential for lifetime settlements for business insurance no longer needed.

Be your clients’ trusted advisor and rely on your general agent for guidance. You will better serve your clients and make more money, plus you may avoid a serious E&O claim.

Or so goes the home office joke. But when your client is declined for life or long term care insurance coverage it’s no laughing matter—especially when the case is larger or when the decision is a shocker because the reason was cognitive impairment.

Why the recent excitement about seniors and life insurance? Right now, many agents and clients are realizing that some modified endowment contracts (MECs) (as well as many annuities)—especially those with accelerated living benefits—accumulate cash and are tax deferred.

Products exist that return 3 percent or more, net of mortality costs, with positive cash surrender values even in the first or second year. Plus, they leverage the money for critical and chronic illness.

It’s not just about wealth transfer anymore. If a senior client has a large, unexpected medical expense, there may not be much left to transfer. Accelerated death benefits for both chronic and critical illness are here—and just in time.

Along with senior life insurance, though, comes senior underwriting. More than 10 percent of people with mild cognitive impairment will develop real dementia each year compared to only 1 or 2 percent of a control population.

So, now it’s time for the exam and you find that it will include some type of cognitive impairment testing for your client. Don’t be surprised that there are several widely used tests.

Many major brokerage companies are using these tests, and the ones with no formal testing are fully aware of the issues and take them into consideration when underwriting a case.

Primary Cognitive Impairment Tests
There are a number of tests used to diagnose cognitive impairment and the onset of dementia. The criteria are that the tests have to be reliable and useful, can’t cost a lot of money, should not be intrusive, and should not have to be done by a professional. There are a half dozen tests that fit these standards, most of which are accompanied by an activities questionnaire.

The Clock Test. While there are many variations on this test, they all involve the client drawing a clock face. The client is either given a blank piece of paper and asked to draw the clock, or given a pre-drawn clock face—most variations ask the client to draw the hands denoting a certain time. The time 11:10 is often used as a trick question because of the “pull” of the number 10 on the clock. This test usually takes just a few minutes.

Sounds simple doesn’t it. However, you wouldn’t believe the variety of results. Underwriters look for 15 or 20 indications, including how many numbers are in each quadrant; whether the numbers are evenly spaced; the position of the number one; whether the hands are of equal length; whether the numbers 1, 2, 4, 5, 7, 8, 10 and, especially 11 are correctly placed; and whether the numbers are all inside the clock.

This test includes spatial ability and reasoning, but could easily be a problem for people with visual impairment or trouble holding the pen. The client’s education should not be a factor here. This test is sometimes thought to be weak on mild cognitive disease. But you would still be amazed at some of the clocks underwriters see.

The Delayed Word Recall Test. This one is quite common and is part of another widely used test called the Minnesota Cognitive Acuity Screen, which has been widely used in long term care testing for years. It was developed especially to facilitate the early diagnosis of Alzheimer’s disease.

The test is pretty simple. An examiner gives the applicant being tested a list of 10 words and asks him to use each word in a sentence. Then after a delay of 10 minutes (often a timer is used), the examiner asks the applicant to repeat the words until it is clear that he is unable to continue. The score is based on the number of words recalled. Most people can repeat seven to nine words without a problem. If the person being tested can get only half, that is a sign of a problem.

There is also a connection between scoring on this test and senior depression. Almost half of those taking this test could be misclassified as having dementia based on their word recall scores if they have depression. Thus, some experts conclude that this test is not specific enough by itself to clearly tell whether a person has early Alzheimer’s as opposed to major depression issues.

Note that a person might score low on this test and yet be able to perform every typical daily function—driving, paying bills, balancing a checkbook and traveling. Yet, should someone have Alzheimer’s, an early diagnosis could be important, since there is irreversible loss of functioning for every month that mild to moderate disease goes untreated. (More than two-thirds of Alzheimer’s patients are diagnosed after they already have moderate dementia.)

Another major problem with this test is that someone who isn’t proficient in the English language could be misdiagnosed.

The Get Up and Go Test. This is a functional test that primarily measures a person’s motor skills and balance, yet it can also provide some insights into cognitive abilities such as responding to commands.

The test consists basically of asking the client to get up from a chair, walk a certain distance, return to the chair and sit down again. It can be used to test for possible stroke, Parkinson’s disease, cerebral palsy and other functionality issues. This test is used with the activities questionnaire which outlines the client’s general fitness and exercise.

People who exercise are generally more accommodating to change, more optimistic about life and recover from minor illnesses quicker—and have longer life expectancies.

The Alzheimer’s Quick Test. This is an easy test to administer and score, is free of cultural biases, but isn’t that widely used. The person being tested is asked to identify colors and shapes (such as animals). We can guess why this test isn’t widely used—it was available on a medical website for $230 but has now been discontinued.

The Mini-Cog Tests. These rapid screening tests for Alzheimer’s disease take only three to five minutes to administer. They include only two tests: recalling (only) three words and a clock drawing. While purportedly very accurate, they score a person as demented if he recalls none of the three words or if he recalls one or two of the three words and draws an abnormal clock. This may be a good indicator, but it’s too rudimentary for use in the insurance business.

The Minnesota Cognitive Acuity Screen (MCAS test). A few companies use the MCAS test, which claims to be 98 percent accurate in detecting cognitive impairment. It’s normally used at age 71 or older. It’s simple and involves a short, non-threatening phone interview—though it can be done in person as well.

Trained nurses conduct the interviews and the turn-around time with results is quite short with electronic test results. Most people think it’s more simple and straightforward, plus it doesn’t involve any “get up and go” testing and delayed recall tests which, reportedly, can be 10 percent inaccurate.

The MCAS test is accurate with an error rate of less than 2 percent. The test involves 15 minutes of questions and answers about a client (name, address, birth date, day of the week, how he would handle various emergencies, a six-digit number recall, and word recall—remember as many of 10 words as possible). The client might also be asked to tap on the telephone when instructed. In 2005, the Society of Actuaries reviewed the test favorably and today, more than two dozen carriers use the test in screening for LTC insurance.

What Does All of This Mean?
These studies prove fairly conclusively that people who score poorly have a much higher mortality experience than people who score well. The delayed word test in particular shows that, as people get older and older, the mortality savings to the insurance company increases. The savings is so significant that the costs of testing might need to be in the tens of thousands of dollars to outweigh the benefits. Obviously these tests don’t cost anywhere near that.

Attending physicians and even family members are notoriously bad at spotting the onset of dementia. According to the Society of Actuaries, doctors often don’t note cognitive status in their files and often miss the problem in 60 to 80 percent of cases.

More and more companies are implementing cognitive testing, with many using multiple tests—usually including the delayed word recall test and the clock drawing test. In the future, we can expect this trend to continue—with the best companies that have the best products including these tests. And, as companies continue to assess the effectiveness of these tests, more and more will get involved, combining traditional medical underwriting with criteria that measure frisky versus frail.

With better knowledge about senior life underwriting coupled with the fact that LTC insurance sales are lagging, many agents are now recommending life insurance policies with accelerated benefits. The cases we see are often single premium MECs, with accelerated benefits. The premiums are often $100,000 and the applicants are often women.

Know the products, know the underwriting, but don’t sell just the products—sell the solutions.