We are all, of course, guilty of succumbing to the temptation of embracing easy answers. However, sometimes it seems our chosen profession may have a particular affinity for simplification excess.
This is evidenced by a statement I heard recently from the committee examining the wide and growing world of combo products. “Hybrid, linked and combo products are the fastest growing segment of both life and long term care insurance.” When you add asset-based long term care sales, we have a several billion dollar industry, with stand-alone LTCI sales accounting for only about $500 million. The interesting question is: How much of the current life production is written with some form of chronic illness benefit? The current guess is approximately one-third. This number will continue to grow as more companies move aggressively to provide some form of living benefit. I suspect that worksite alternatives will also increase, adding fuel to the fire.
Our industry is often slow to react, but a clear threat to a company’s competitive position does eventually drive real change. Unfortunately these riders are being produced across a very wide spectrum of quality and intent. I am very concerned that many people may not clearly understand what was sold or automatically included in their life policies. I am even more concerned that consumers do not clearly understand what they bought. I am having dreams of a future plethora of E&O debacles.
Any leveraging of risk is preferable to ignoring the problem. It is also very helpful that we have so many more choices. As the long term care provisions of the Pension Protection Act approached, I gave many speeches about the upcoming advantages of our new three-legged milking stool with stand-alone LTCI as well as life and annuities with LTCI. As this market continues to evolve, it is starting to look more like an untrainable and ill-tempered octopus.
Here are a few of the rhetorical questions that come to mind:
• How can you sell the perception of long term care protection and not be trained or certified to have that conversation?
• If the sales opportunity arises as a question about long term care risk, doesn’t that automatically defeat the purpose of the combo sale? Remember, more than 80 percent of LTCI sales originated with the consumer, not the agent.
• How do you offer a “no current cost” benefit when you can’t even tell the consumer with any confidence what it will cost them if they use it for care?
• If you offer a benefit, do you not have a responsibility to at least offer the lowest net cost to pay for the risk?
• Premium deductibility?
• Did you evaluate 1035 opportunities first?
• How do you explain the sale of life insurance where there may not be a need for additional life insurance, or the loss of annuity savings when they are needed for income?
• Did you clearly explain that IRC Section 101(g) “life riders” requires a permanent, nonrecoverable disability threshold for benefits?
• Where do you place the “planning”? Is this a health or estate or asset management planning process?
The perceived ability to conveniently address more than one need for protection with one sale has always been attractive. The current popularity of this approach as it relates to LTCI, however, requires an understanding that the temptation of easy answers must be resisted. There is no one right answer—each situation is unique. Begin as usual with a careful review of what is already in place. What could be exchanged, and at what cost? How best do you enhance long term care protection, and what is the net cost of those recommended options? We have not simply stumbled onto a new and miraculous panacea for the long term care risk conundrum. We have not found an easy answer or an easy way out. The truth is complicated and requires training in all the available solutions. The best answer may actually require a little of this and a little of that. Learn to mix and match with confidence and enthusiasm and give up the quest for that “easy” red button.
Other than that I have no opinion on the subject.
