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?
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.
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.
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.
Q: The need for LTCI certification training dissuades many agents from pursuing LTCI sales. What suggestions do you have for them regarding their clients’ potential long term care exposure?
I will admit, the LTCI certification did deter some agents from selling LTCI, but they were either in the downsizing phase of their business or didn’t really prospect for LTCI. Fast forward to today and it is just something we must do—just like AML, annuity certification, CE credits and on and on. I have been conducting classes since 2008, and I’m amazed at how many advisors get something new out of each class. And believe you me, nothing has changed in the message besides the current statistics.
I could tell you that most of the consumers that purchase LTCI won’t fall into the Medicaid system but you just never know, so if it fits for the client then explain to them how this can protect something of value to them with the dollar for dollar protection of assets against Medicaid spend down (DRA states). Most advisors sell an inflation option, by default putting clients into a Partnership qualified plan, so those advisors might as well embrace the training and stay current with the concept of Medicaid.
I am more concerned with advisors just bringing up the topic of long term care planning with all the solutions we have today versus them knowing the ins and outs of Medicaid. I’ve seen firsthand how some LTCI is better than no LTCI when a family gets into that crisis moment and they need help and breathing room.
If an agent is not willing to invest in themselves and learn the skills required to create an affordable, effective long term health care plan, they should partner with another agent that is certified. The client’s risk is still there; the advisor still needs to provide an answer to handling the long term health care expenses.
Partnering up with another agent is a prudent business decision. All advisors have a responsibility to make their client base aware of the costs involved with a long term health care episode. Not having a discussion and ignoring the risk shouldn’t be an option. An advisor leaves himself in a vulnerable position if this risk is not addressed.
The need for LTC is not going away and it should be addressed with their clients as part of a financial planning process. If they are dissuaded by the certification training, then they need to pair up with an LTCI advisor that can assist their clients. We also like to promote the training, stating how it’s good information, it’s not difficult, and from time to time we have incentivized them with a $100 CE bonus after they write their first case.
Q; What drawbacks are there to using life and annuity riders to mitigate the long term care risk in the place of stand-alone LTCI?
The resounding theme that you will hear from LTCI “purists” is that the inflation component doesn’t work well. Now with that being said, there are some life/LTC combos that do ok, and others that don’t do so well with it.
So, assuming the inflation piece is left off the life/annuity policy, the biggest drawback is that when the client needs to use the policy for long term care the policy benefits have remained stagnate for 15-25 years while cost of care is trending to be significantly higher than the benefits purchased.
I often remind clients and advisors that a stand-alone LTCI policy will bring bigger benefits than a life/LTC or annuity/LTC policy just due to inflation. Now if the client has enough funds to hedge against inflation then there could be a comparison made but that’s not your typical sale.
I have also found that annuity/LTC solutions only fit well when it comes to a funding mechanism. It’s an easy conversation when someone has an annuity out of the surrender period and we can just 1035 the funds over and whatever it gets them is what they get in benefits.
The only drawback is if there is either not enough current cash flow to afford a new policy or something in savings to fund the life or annuity product. Underwriting was a drawback, but in today’s market there are both simplified issue life and guarantee issue annuity products that may accelerate benefits to pay for long term care, chronic care and terminal illnesses.
The biggest risk is that the goal of the insurance is not being truly addressed. Many agents will sell a life policy with a long term care rider thinking that this covers things. However, if the client wants/requires $500,000 in life insurance and subsequently liquefies this due to a long term care claim then the client’s needs may not be truly met. This and the fact that not all long term care riders or chronic illness riders are equal. The devil is in the details and must be looked at. Hybrid solutions can be perfect for a client, however it’s best to focus on insuring the client for what the goal is. And hybrid solutions do not leverage as well as a traditional plan.
Q: Are you seeing more producers combining hybrid products with traditional LTCI to provide a more comprehensive planning solution?
I wish I could say I was, but I’m not. I think of this approach as if I were talking to a younger person about life insurance. Yes I could sell them term life, but I should really broach the conversation about permanent life insurance and perhaps suggest a combination of both. Life is like a teeter-totter—as we age our needs and goals change and that causes the teeter-totter to tip. We do “outgrow” term insurance and need more permanent insurance as we age.
The same goes for long term care planning. Why not start off with a traditional policy—with or without inflation—that you can buy on a budget, and then as life goes on look to add a hybrid to fill the gap and pay back the premiums upon death for what the cost was to own the LTCI policy? It makes sense to me, but I fear that LTCI is still considered a complex sale. We feel we need to explain everything and dazzle them with our knowledge, or get in and get out, because if someone asks for a quote then we need to take the app and hope it gets through underwriting.
If you think about it, our issue age for LTCI has dropped nearly 20 years in age (70 down to 50), so why not put something in place while clients are still young and healthy and coverage is affordable? If a serious health concern develops at a young age you’ve just afforded that family some breathing room, and if not then you can build the comprehensive plan when the mortgage is paid off, the kids are off payroll, and life is in a different stage.
Yes, we are seeing producers migrate to a portfolio of options, including life insurance, annuities and traditional long term care insurance to address the high probability and cost of a long term health care expense. We recommend advisors have all of the tools available to help clients find a suitable, affordable option to handle the long term care expenses.
We are, yes. Part of our charm is that we look at all angles and present multiple solutions depending upon the case. Our brokers like this and look to us to provide both traditional and hybrid solutions if they make sense for the client.
Q: Do you think “financial advisors” and “estate planners” could reasonably face litigation in the future for failing to address the long term care risk? If so, what steps would you recommend to minimize this exposure?
In my mind this is the fear tactic used to try and get action from the advisors that have clients with the funds to buy a long term care policy. Do I think they could face litigation? Sure. But who can’t these days? The real question is “What is the real reason you don’t consider LTCI for your clients?” As of today I believe I’m seeing that President Trump is going to act on the fiduciary rule, but does that mean that we are any less responsible for what’s right for the client? Of course not, and I believe most will always act in the best interest of their clients.
I have found that for anyone that has had a personal experience with a care situation, no matter how long or short, it was impactful. We worry about the long term effects to one’s portfolio if they were to need care for an extended period of time. Maybe they could weather a short term care need. But wouldn’t it be helpful to the spouse and/or the kids to know that they have an advocate to assist them in time of need with finding caregivers and helping them decipher information?
The only way to minimize exposure is to start the conversation, plant the seed, and document, document, document everything.
I use this analogy: If I never sent my daughter to school to learn how to read and write, how can I expect her to do these things? Same with long term care—how can your clients say “no” if you don’t give them a chance?
Absolutely, and especially those advisors that bill themselves as a “financial advisor” or an “estate planner”. In today’s litigious society, suing someone or being sued is pretty easy. When “Ma and Pa” have passed away, and passed along their lifetime savings to home health care associates, assisted living facilities and funeral homes, the heirs may not appreciate an empty bank account.
We recommend that an advisor either get educated, certified and appointed to handle the long term care risk or that he partner with another agent that has prepared to discuss the problem and expense involved with a long term care claim and present a viable solution.
Either get certified to write LTCI yourself or pair yourself up with an LTCI partner that will respect your goals as a financial advisor as well as not compete for your clients. I also think FAs should understand LTCI better and how it works with financial planning. Too many are quick to jump to an asset/hybrid solution when that primarily pulls funds away from their AUM. A better solution could be to set up a $50-100k trust for LTCI where the interest on that goes to fund an LTCI policy as well as pay for any overages. Again this addresses the “use it or lose it” fear.