Ryan K. Hogan

Let’s be real.  There is huge potential for those who are willing to work the long term care business, especially with multi-life LTCI.  I’ve seen many agents leave money on the table and expose their book to competition as they never discuss LTCI with their clients.  From speaking with them I’ve concluded that either they don’t know about the opportunity that lays before them or there are perceptions limiting their potential—and overcoming perceptions to see reality can be daunting.  

Before discussing the opportunity, we need to address brokers’ limitations.  First off, this is not right for everyone.  As an agent, if you don’t believe in the value of LTCI or can’t see how an LTCI policy would help protect a worker’s family, retirement and 401(k), then this isn’t for you.  If this describes you, do yourself a favor and find an agent that does see the value in LTCI.  Fifty-five percent of Americans are concerned about how to pay for long term care costs,¹ therefore it’s a need that should be addressed.  Otherwise you run the risk of endangering your book to competition.

I’ve heard many limiting perceptions including “LTCI being hard to sell, rate increases, hard to qualify for, and that the ‘market is saturated.’”  In regards to LTCI being hard to sell, all you need is to find the right buyer and maybe some basic training from a solid BGA.  As far as the other limiting perceptions go,    The potential for rate increases on LTCI products sold today is wildly low as we learned from the Society of Actuaries in their study Long-Term Care Insurance: The Pricing Project 2016, and the potential for group market rate increases is even lower.  Multi-life LTCI also dispels the objection of being hard to qualify for with its simplified underwriting; you can expect to see a 94 percent approval rate.  Even spouses can qualify for simplified underwriting!  I can’t say enough about it.  For example, this past fall a man already scheduled to have knee surgery qualified in three days—all due to the simplified underwriting.

Lastly, but more important, is this belief that the market is saturated.  This couldn’t be further from the truth.  Yes, the LTCI market has slowed down over the years and sales are starting to level off. If you combine hybrid and traditional LTCI sales, however, the group market is heating up.  This is the perfect time to enter the group/multi-life side of the LTCI market.  More agents are entering the market as they start to learn about the simplicity and beauty of multi-life LTCI, and there is plenty of room for you.  A great way to describe it is that it’s like buying Apple, Inc., stock when they first purchased the mouse from Xerox.

Currently there are just not enough agents talking about LTCI to their clients.  Genworth does a study every year from policies sold and the results show that only 17 percent of the policies are sold from when the agent approached the client.  A very successful group/multi-life LTCI agent that we work with once said, as he smiled, “Selling multi-life LTCI is my best kept secret.  It’s like swimming in the blue ocean, very little competition and generally the client is very receptive to discussing it with you.  Now the life, DI, and health side of the group market is like swimming in the red ocean—fighting over business where it can be won and lost over saving five dollars.”  Looking at the numbers you can see why an agent would feel this way.

Overall penetration into the market for groups above 5000 employees is between 31 percent and 39 percent.  This is a good indicator of employers buying-in to adding LTCI as an employee benefit.  Groups between 500—5000 have an eight to nine percent penetration in the market, leaving lots of room for growth in this area.  

The largest potential lies with groups with less than 500 employees.  Less than one percent of these businesses have an LTCI plan in place for their employees.  

Navigating the multi-life LTCI world can be simple once you learn it, as there are only two carriers playing in this field—however you still need to know the rules.

The companies vary slightly, but in general here are the things to consider:

• An LTCI benefit can be offered to only those the employer wishes to receive this benefit and the number of employees offered this benefit determines what rules they must work with.  
• Multi-life can go down to as few as three employees.  For the groups with three to nine employees the benefit must be 100 percent employer paid with all plans being the same plan design.  Ideal companies for this are either closely held family businesses or partnership type businesses such as law firms and medical practices.  
• For employer groups with 10 to 74 employees the rules loosen up greatly, allowing executive carve-outs, employer minimum contribution, and an employee contribution.  Groups this size still require an employer contribution to qualify for simplified underwriting, however with the flexible plan design employers can choose a plan that works to achieve their goals and objectives for coverage and cost.  
• Groups 75+ have the best of all worlds as they can enjoy simplified underwriting with or without an employer contribution, have carve-outs to meet employer needs, and even offer the LTCI benefit to extended family.  

Employers, C-suite executives, and HR/EB managers are looking for this solution.  A study done by Wells Fargo on employee benefit trends, published in December 2016, shows that of the top three goals of employers in regards to benefits, they are concerned with maintaining productivity of employees and attracting high quality new talent.  Both goals can be addressed by adding an LTCI benefit to their employee plan.  Ask yourself three questions:

1. What companies do I know that have three or more employees?
2. Of those, which are financially stable?
3. And lastly, which ones can I get to the decision maker directly or indirectly?

This is your list and starting point to get into the multi-life LTCI market.  So why else should you consider adding this to your agency’s portfolio?  

One of the benefits to offering multi-life LTCI is great public awareness.  Above that, you would be adding a product line that has very minimal maintenance and virtually no service work!  LTCI is not something that gets replaced! Unlike your life, health, and DI plans.  Once you sell a plan to an employer you collect the first-year income plus all the renewals for years to come.  The only “service work” needed is to enroll new employees.  The income from multi-life LTCI sales is also quite good.  Adding $100,000 to your bottom line is as simple as selling four cases with 25 employees each.  For smaller agencies or individual agents, you can do this by adding it to your annual reviews.  For larger agencies, it would be worthwhile dedicating an agent to this pursuit.

If you’re interested, make a list of your potential prospects and reach out to a MGA specializing in multi-life LTCI.  Being paired with the proper support can be the difference between success and failure.  A good MGA can help guide you with not only what to do but also what not to do that will help you achieve success and avoid stress, frustration and wasted time.  Success is there for the taking!  

Pulling from the Genworth study discussed earlier:

Q: Why do companies provide an LTCI benefit to their employees?

A: Because you talk to them about it!

Footnote:

1. LIMRA and Life Happens. 2015 Insurance Barometer Study and Associated Press-NORC Center for Public Affairs Research. Long-Term Care in America: Americans’ Outlook and Planning for Future Care. 2015.

Q: Anxiety about large rate increases and “use it or lose it” are two of the biggest obstacles in making the stand-alone LTCI sale.  How can agents address these objections?

Hughes
I am wondering if that is the biggest obstacle for consumers or advisors? As advisors, we definitely have to be comfortable with talking about rate increases. Whether it is legacy blocks of business or new carrier entrance into the long term care space, we need to understand why this happens. As for consumer, they need to understand that LTCI is a health insurance product—and just like all other health lines, these can take increases. The great thing is that LTCI policies don’t take rate increases every year, but when they do it is all at one time or maybe spread out over three years as we are seeing today. Now I will admit, a policy sold in 2007 that takes a 90 percent rate increase is effectively about a 13 percent increase each year, and that’s hard to stomach, but a policy sold in 2000 that takes a 15 percent increase over three years (45 percent total increase) is effectively a 2.6% increase annually. What we should be telling our consumers is that if we had to mentally factor in a two to three percent increase every year, would that still be “doable”? Most of the time you should get a yes. If not, then maybe we should question the suitability. We’ve seen carriers come out with step-rated inflation and why that hasn’t taken off is interesting to me. Wouldn’t this be a win-win to the carrier and client, where they can control the stopping point if they wanted to freeze the growth and freeze the premium? I find reassurance in a Society of Actuaries pricing study that shows policies sold in 2000 had a 40 percent likelihood of a future rate increase compared to policies sold in 2007 with a 30 percent likelihood and in 2014 with a 10 percent likelihood. And here we are in 2017. 

As for the “use it or lose it,” that objection is easily overcome today since we have some wonderful solutions based around life insurance that offer a death benefit if you never need long term care—because we all know with 100 percent certainty that life is fatal. 

Smith
Use it or lose it is not really lose it anymore, it is more like you get what you paid back in the form of benefits.  This may ease some of the regret, knowing you have paid LTCI premiums for years, only to discover you may no longer be able to afford the policy.  So, you either drop the coverage or reduce the benefits to fit your budget.  Keeping the plan in force, even at a reduced rate, is a smart thing to consider.  Something is always better than nothing when it comes to LTCI.

Hogan
Large Rate Increases—We point to the latest study from the Society of Actuaries, Long-Term Care Insurance: The SOA Pricing Project, showing agents that the potential rate increases on products sold today is very slim as well as discuss the past and why we have large rate increases on the older products. The conclusion “New Policy Pricing: Today’s Environment” (on pg. 8) states that:

“Carriers that are considering entering the LTC market or have discontinued selling LTC products should welcome the current pricing environment. To be clear, this paper does not claim that today’s LTC products will not need future rate increases. Rather, based on an analysis of pricing assumptions and historical experience, we conclude that LTC policies priced today are significantly less likely to need future premium rate increases than any earlier product generation.”

You can find the full study at https://www.soa.org/Files/Sections/ltc-pricing-project.pdf.

Use it or Lose it—We address this primarily with the use of the Shared Care Rider or showing, side-by-side, a comparison of traditional LTCI with a GUL compared to a hybrid.  The traditional with a GUL is likely to be similar cost, yet if the insured goes on claim he will not cannibalize the death benefit.

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.