Zero Premium Contortions

First, LIMRA does a fantastic job evaluating our sales progress along all product discipline lines. For the most part our progress or retreat from a given market appears as a reasonable incremental up or down movement. The steady yearly fall over the last 17 years of individual stand-alone “traditional” LTCI has become an unfortunate fixture in the celestial sales firmament. Sales of any long term care planning solution, to include life combo and traditional, have been holding relatively steady at about a half million new buyers per year. And relatively speaking, individual LTCI has apparently bottomed out in 2019 at a little over fifty thousand new proud (and BTW extremely smart) owners of peace of mind inflation protection. We know all this only too well.

Please feel free to consider the following as just another “rant” as we absolutely must look at these numbers from a different perspective—a frequent contortion in this column. Let’s begin with what is sold versus what is simply placed. Please feel free to generalize about some very clear basics. You do get what you pay for in life. There is no free insurance. If we sell a benefit, we expect to be able to easily define and measure what it will be when it is needed most. Please hold long term care planning sales up to the light and look for transparency. Is it life insurance or health insurance both base and/or rider? If it’s a life combo is it a long term care or chronic illness ADBR. Now (drum roll ) here’s the big one: Did you pay for it? Or did it arrive at the point of sale gift wrapped in “no current premium?”

Now dear friends let’s drill down on the basics as we all know them. Long term care planning solutions come in a very few identifiable flavors and there must not be any co-mingling of structural differences.

  • Traditional sales remain the shortest distance between two points. It is an individual health insurance policy. You pay for what you get, nothing else.
  • Life combo is an either/or contingent benefit. It is simply a base life policy plus an option to have some level of the death benefit made available for long term care planning purposes.
  • These Accelerated Death Benefit Riders are either a LTCI health IRC 7702B or an IRC 101g life chronic illness rider.
  • Now you only need to add two critical ingredients and the pot is right: 1) Did anyone pay for the rider or was it “Zero Premium?”; and, 2) Did you provide for a mechanism to exceed the original death benefit…an “EOB” Extension of Benefit rider?

Now here’s the rub. The vast majority—59 percent of all sales in 2019 booked as life combo sales—were given away, not sold!

Please explain what sale you made if you did not collect a premium? What was placed was no charge until of course you actually tried to use the benefit.

Please tell me you understood that these illusive benefits may ultimately appear as questionable, maybe even re-underwritten or severely limited benefit dollars at the time of claim.

Before my “living benefit” friends get out the tar and feathers, please understand that there are reasonably good ones and those which are not so good. These distinctions are not available from LIMRA. Although wholesale distributors routinely help advisors make these very important distinctions.

  • Never give away or sell a future benefit (or source of potential litigation) without reading the rider specimen language.
  • Begin with a search to make sure benefits are not restricted by the requirement of a permanent disability.
  • In the case of whole life base policies, look carefully at the premium and what may already be included and not appear as an extra charge.
  • Many have been remodeled and updated (if filed through the IIRC) to use HIPAA look-alike claim definitions. The proverbial duck theory does prevail. These CI riders are very hard to tell apart from long term care.
  • Can you tell your client exactly what they will be paid when and if they need money for care? If you cannot, you don’t want those deficiencies cleared up for you by a plaintiff’s attorney in 15 or 20 years.

Two thoughts:

  1. It is so tempting to be able to say: “If you don’t use it, you didn’t pay for it.” Don’t do that—it is not true!
  2. If you didn’t collect a premium you didn’t sell anything. If it was an accommodation to political correctness, an afterthought, or blatant window dressing, therefore it had little meaning and no real value to you or the customer.

Please leave these in your better than nothing bottom drawer.

I cannot resist the ultimate rhetorical question. If there is a worthwhile zero premium option, why not mandate its presence on all life sales? Problem solved, right?

Other than that I have no opinion on the subject.

Ronald R. Hagelman, CLTC, CSA, LTCP, has been a teacher, cattle rancher, agent, brokerage general agent, corporate consultant and home office executive. As a consultant he has created numerous individual and group insurance products.

A nationally recognized motivational speaker, Hagelman has served on the LIMRA, Society of Actuaries, and ILTCI committees. He is past president of the American Association for Long Term Care Insurance and continues to work with LTCI company advisory boards. He remains a contributing “friend” of the SOA LTCI Section Council and the SOA Future of LTCI committee. Hagelman and his partner Barry J. Fisher are principles of Ice Floe Consulting, providing consulting services for Chronic Illness/LTC product development and brokerage distribution strategies.

Hagelman can be reached at Ice Floe Consulting, 156 N. Solms Rd., New Braunfels, TX 78132 Telephone: 830-620-4066. Email: