Not Your Grandpa’s Long Term Care Insurance

…flavors to fit every palate

by Bob Vandy, CLU, ChFC, LUTCF, CLTC

PART II in a three-part series
In Part 1 of this article series, we examined the changes that have taken place in the LTCI market, and at least some of the reasons why. We also explained why now is a great time to be having the LTC planning conversation with clients and prospects, largely driven by the continuing demographic trends and the inadequacy of other financing alternatives like Medicare and Medicaid.

We also discussed how the products themselves have changed over the years, and the newer entrants into the LTC financing arena. Let’s begin Part 2 by reviewing those product solution options:

• Traditional (& Partnership) LTCI – most would agree that traditional LTCI allows for the most comprehensive, and most customizable, LTCI benefits available. It also comes in a “Partnership” flavor – at least in most states – which allows a purchaser to buy a private LTCI policy and secure some back end asset protection via Medicaid Extended Coverage in the event policy benefits are exhausted.
• Linked Benefits – these products generally come in single-premium variety (although one carrier currently allows modal premiums of 3,5,7 and 10 years in most states); that single premium purchases a death benefit and an LTC benefit which are multiples of that single premium. For example, a 60 year old female may get a ratio of about 2 to 1 for death benefit and 5 to 1 for LTC benefit in such a design. These plans generally are not designed with an inflation option (though they can be) and they are especially attractive to the buyer who has been reluctant to purchase traditional LTCI lacking a “return of premium” option in the event of death and never using the policy for LTC costs, which is satisfied by the death benefit in these products. They have also been quite popular with advisers (and clients) who like the “transactional” nature or “better way to self-insure the LTC risk” opportunity they provide. While the life insurance version is the more predominant player of these types (at least currently), the annuity version should be considered in states in which it is available, for many of the same reasons.
• Life insurance with “accelerated benefit” riders – the newest entrant into the LTC product planning field – and arguably the fastest growing – these are the [usually] universal and [sometimes] whole life products we have come to know and love, with one main exception; they are issued with riders that allow the policyholder to use the death benefits early if certain conditions are met. With the true “LTC” versions, this means benefit triggers similar to tax qualified traditional LTCI policies (inability to perform 2 of 6 ADLs or a cognitive impairment). With the “chronic illness” versions (which also typically pay their benefits on an indemnity or cash basis vs. reimbursement for most LTC versions), an additional benefit trigger is generally required, which requires an expectation that the condition for which extended care benefits are sought will be permanent. These policies also carry the added benefit of maximizing the life insurance death benefit per premium dollar (by design), to allow for a good LTC benefit and ultimately, death benefit, if no LTC/chronic benefits are paid before death.

So – which one’s “best?”

Well, that’s a loaded question to be sure. In short, it depends. Here are some things to consider when helping a client decide which solution might be best for him, her or them:

• Do they want to pay ongoing annual premiums – which may ultimately pale in comparison to a single up front premium in a Linked Product – or do they prefer a “once and done” approach?
• How concerned is the client about the potential for future premium increases? If highly concerned, either Traditional LTCI with no inflation (which arguably carriers lower risk of premium increase) of Linked product may be best.
• How concerned is the client about having premiums returned to his/her estate upon death if LTC benefits are not used? This can be accomplished either with an ROP rider on Traditional LTCI or via the death benefit from a Linked Benefit or Life with Acceleration rider design.
• What is the client’s underwriting status? It is no secret that underwriting for LTCI has become more challenging. While some Linked Benefit products may offer a [slightly] better opportunity to qualify for coverage (in fact, it is a bit of a misnomer that clients who can’t qualify for Traditional LTCI should automatically qualify for a linked product), there are some clients who simply will not qualify for any type of LTCI coverage.
• Tax considerations – if the client is in a state where both a federal and state tax incentive may be available, Traditional LTCI may be the best choice. The Linked Products we’ve mentioned, as a result of being on a Life Insurance (or, sometimes, annuity) chassis, are not able to take advantage of the same premium deductibility and/or credit incentives as tax qualified LTCI.
  

  There are a few additional takeaways we might suggest as well; they are:

• What is “best” for one person is not necessarily “best” for another. A Traditional LTCI policy may be just the right fit for one client, while a single premium Linked Benefit may be better for another.
• Contrary to some recent news blurbs, there is nothing inherently “wrong” with any particular LTCI design, including Traditional LTCI. Yes, LTCI is experiencing some growing pains, but the product is still tremendously advantageous in the right situation.
• Consider the alternative – some clients become so consumed by negative publicity and/or thought of their own morbidity that they ultimately do nothing. That is undoubtedly the worst approach to take, as it leaves the client exposed to crisis mode in the event of an eventual LTC need, when choices and options are arguably least attractive.
• LTCI is not for everyone! That’s right…I said it…not everyone is a candidate for LTCI, in whatever flavor you may consider. They may not be able to qualify medically for it, or the premiums may truly be unaffordable for them.
• Partner with a firm that knows LTCI in all its flavors – working with a BGA that understands ALL the different LTCI options will be increasingly important as the industry continues to evolve.One final point on this “new normal” for LTC planning and LTCI – it is vital that you continue to educate yourself as you move forward. Whether you are (or want to be) an LTCI specialist, or are a more holistic financial adviser or planner who simply wants to make LTC planning and LTCI available to your clients, being conversant in the various client options will only enhance your relationships with those clients and other prospects.

In Part 3 of this article series, we’ll take product design a step further. What are some of the creative ways to design a Traditional LTCI policy? How can you make a policy both meaningful in its coverage and affordable to the client?
We’ll answer those questions and more next time, so stay tuned and Good Selling!!