Selling LTCi: Pricing, Perception and Persistency

There’s more than one way to tackle the longevity challenge

by Bob Vandy, CLU, ChFC, LUTCF, CLTC

It wasn’t that long ago that the Long Term Care Insurance (LTCI) industry relied upon one main product to solve the client LTC planning need, and plan designs didn’t change that much from one client to the next.

Historically, we offered our clients traditional LTCI, with a $150-$250 per day (or more here in the Northeast) benefit for 3-5 years, a 5% compound inflation rider, 30 day (or less) elimination period and resulting premiums were often in the realm of reasonable (I know, a subjective thing) for many clients.

Then, things really changed because of factors largely beyond our control: much higher persistency rates than anyone anticipated (resulting in much higher claims costs than we originally thought); much lower market interest rates than anyone anticipated (which has had a tremendous impact on carriers’ underlying investments, earnings and reserves) chief among them – plan designs have had to change, largely due to premiums for those former types of plan designs becoming out of reach for many clients.

At the same time, buyer (and/or advisor?) perceptions about what the policies can or should do have changed. For instance, more often now, clients realize it is impractical (and/or unaffordable) to buy a traditional LTCI policy like the one outlined above, or that will cover the entire cost of a lengthy stay in a nursing home.

But at the same time, they recognize that having SOME coverage in place, especially to offset a healthy portion of the cost of care at home – the one place almost ALL of our clients will statistically receive, and would prefer to receive, care – still shifts financial risk that would otherwise come directly out of their pockets, to that of an insurer. In short, there is still VALUE to using LTCI.

For those of you who help clients put Life Insurance in their financial plans, ask yourself a question, “when was the last time you refused to write $500,000 of life insurance for a client, simply because you knew that $1 million was really what they needed?” Aren’t they better off with the $500,000 than with nothing at all? Why should it be different with LTCI?

LTCi: An Evolving Space

The traditional LTCI space has evolved. The economic, product and consumer attitude changes mentioned above have pushed premiums higher, and have led plan designs to be more modest in nature.

At the same time, LTCI policy approaches and designs have also become akin to Life Insurance or Disability Income; that is, writing a reasonable policy today that my client can afford, and coming back later to revisit it to see if adding or modifying coverage, makes sense.

Today, there is good news…and bad news. The good news is that – contrary to new stories talking about the carriers who have decided to stop writing new LTCI business – there are actually MORE LTC planning solutions available than ever before to help your client.

What’s the bad news? Well…there are more LTC planning solutions available than ever before to help you client. It can become confusing if you don’t have the right partner to help you, as the advisor, sort things out.
Ultimately, the one thing that has NOT changed, and is not likely to change anytime soon – is the NEED.

And, that is the most important takeaway for this article; that is, regardless of how we feel about traditional LTCI or other product solutions, putting our collective heads in the sand and ignoring this ever present, and growing, problem will NOT work.

Consider these facts from www.longtermcare.gov:

• Baby boomers (77 million strong) are still a freight train heading toward future LTC need
• Someone turning 65 today has almost a 70% chance of needing some LTCI services before dying
• Men need care, on average, for about 2.2 years; women for 3.7
• 65% of people who receive Home Care will receive it for an average of 2 years
• 35% of people who need care in a Nursing Facility will need it for 1+ years

What do all the statistics and changes in the market mean? Well, among other things, they have led to clients being more interested in planning for LTC, but often wanting newer and more flexible products than just traditional LTCI to do it.
For example, many clients – even after we explain the principle of insurance (vis a vis homeowner’s or auto insurance) and the fact that it is not designed to pay back a benefit to our estate if we die without using it – don’t like the notion of paying years of premiums and getting potentially nothing “in return.”

Can you imagine HOPING that our home burns to the ground or that we get into a serious car accident, just so we can see a benefit from our insurances? Of course not. Why, then, do we view LTCI differently?

That said, we can solve that concern with a host of newer generation LTC planning products, and still provide meaningful benefits to our clients. While most agree the most comprehensive solution to the LTCI planning dilemma remains the traditional LTCI products, these newer products can solve multiple planning desires in one product.

The New Combo Policies

Today, we have Life Insurance and, in some states, Annuity products that combine those base benefits with LTC (or, sometimes, “chronic illness”) riders, giving clients (or the client’s estate) the ability to realize a benefit from their policy, regardless of whether they:

• Live and need LTC services
• Die without ever needing those services
• In some instances, decide it was a bad idea to begin with and decide to walk away and want all or most of their premium dollars back

That may lead to an obvious question, namely, “…okay Bob, which one is the best solution then?” The answer is…wait for it…it depends!

I know – you hate that, right? Well, it’s the truth. Each product out there today has its own merits, and there is no one product that stands out as THE BEST solution for everyone.

While some might opine that one is better than another, we find that those opinions often come from those who may have a vested interest in one versus another (the proverbial, “…when you’re a hammer, everything looks like a nail…” syndrome).

At our firm, and many others, we take a product “agnostic” view of the various solutions and strive to find the one that best suits you client’s specific situation best.

Isn’t that what you want? Isn’t that what you client wants?

We think so. And, based on feedback we receive regularly, it’s what most advisors and clients want as well. In the end, the best product solution to the client LTC planning problem is the one that is in force when the LTC event occurs.
Good selling!! ◊