Navigating the Hurdles: A guide to selling LTC insurance

Many agents and advisors face numerous challenges in their efforts to sell long-term-care insurance (LTCI), even though it’s estimated that 70% of individuals over age 65 will require some help to defray their LTC costs. So, what does it take to rev up sales of this much-needed product?

New features and options have made the product more palatable for people who are ready to buy, but none of them are helping to truly grow the market, said Bill Comfort, owner of Comfort Long Term Care, and director of Training for the Certification for Long Term Care. “The reason for the continued anemic sales of all types of LTCI – traditional or hybrid – is that financial advisors are not actively engaging their clients in a proactive planning process,” he said.

Overcoming a natural bias

It’s human nature to be optimistically biased; so, taking a clear-eyed look at a long-term care situation that no one wants to have happen, and to buy an LTCI product to provide for something that everyone hopes will never happen is easy to dismiss, Comfort said. Financial advisors need to engage clients who don’t want to talk about this subject, but who need to, in a proactive planning process, when these clients are still healthy enough to qualify for LTCI and they are at an age when it is more affordable and accessible.

Just as saving enough and investing wisely require professional guidance, so does making extended care planning a key part of retirement and longevity planning, Comfort said. Some individuals will do this on their own if they are shown that it’s a planning problem and not just a binary, insurance-purchase decision.

Comfort added that one of his mantras, and something they teach in the Certified in Long-Term Care (CLTC) designation program is: “The policy is not the plan; the policy pays for the plan.” Too many consumers – and too many advisors – start at the end with a product pitch instead of a fully developed, extended care planning process. “It’s a process that should help consumers see that at least some amount of LTCI is vital to provide the kind of care they want while reducing the caregiving burden on their loved ones.”

Important questions to ask

To truly grow the LTCI market, Comfort added, agents should start their client conversations by asking the following questions:

“What is your plan for care?”
“Where would you want to receive that care?”
“Who would you want providing that care – or not?”
“How will you pay for the very high cost of professional care services?”

But most LTCI sales continue to be reactive, Comfort added. The first group of prospects recognize that their health is deteriorating, and they are motivated to buy, but face the possibility of receiving a denial or very limited and very expensive options. Or, they have lived through the burdens of caregiving for their loved ones and the very high cost of professional care services.

The second group of prospects is highly motivated and are good prospects for a product sale. These “self-nominating” prospects are the people most agents and advisors work with, Comfort said. For them, the need for coverage is already established by experience; so, the focus becomes product features and cost. “The problem is, as we’ve seen for 20-plus years, this type of reactive product selling doesn’t grow the market, and by extension, doesn’t effectively help enough people,” he said.

The ideal time to buy LTCI is when someone is in their 50s to early 60s. But this is when most people don’t want to think about the subject, but they need to, Comfort pointed out. Policies are widely available until about age 79, but the risk of being declined after age 65 grows dramatically, as does the premium cost.

A look at hybrid or combo policies

Once the need for LTCI coverage by the prospect is established, then the application of the right amount of coverage and the type of policy becomes the focus, Comfort said. No single type of policy is inherently better or worse than the other – they are simply different ways to design and fund the LTC coverage.

The proliferation of hybrid or combo policies that link either life insurance or an annuity with LTCI benefits has opened new opportunities for people who were previously uninterested in purchasing coverage, Comfort added. Getting a death benefit or return of cash value if care is never needed is often the first benefit cited for these hybrid plans. “And that is desirable for many people, if they can afford the higher premiums,” he said.

What is often overlooked is that to create the same LTC benefits as those provided by a traditional LTCI policy, hybrid plans cost significantly more money. “Traditional LTCI is often pejoratively referred to as a “use it or lose it” proposition,” Comfort pointed out,” but this is how insurance is supposed to work: Pay the lowest possible premium to cover the potential risk. Hybrid provides a type of “return of premium” if care is never needed, but it comes at significantly higher premium for the same LTC benefits.”

Return of premium options have been available on traditional LTCI products for 30 years, Comfort pointed out. Most people never bought these products because they thought they were very expensive, adding 40-50% or more money to the cost of the premium. “The life plus LTC hybrids have simply repackaged this concept with effective marketing,” he said.

Some hybrid LTCI policies provide guaranteed premiums, along with limited-pay options where premiums are paid-up in 20 years, 10 years, or even with a large single premium. Guaranteed and/or paid-up premiums are attractive for some people. It should be noted, Comfort pointed out, that two traditional carriers – National Guardian Life and Thrivent – also provide 10-pay options, and NGL has a single-pay traditional plan; so, this is not just limited to hybrids.

Another feature that’s not new but has had a resurgence in offering by several hybrid carriers is an LTCI policy with “cash indemnity” benefit payments. This is when the full monthly benefit amount is paid regardless of who provides care and where or what the actual expenses are, creating a very flexible benefit at the time of claim. Not all hybrid plans offer this, Comfort pointed out. Many are still “reimbursement” designs, like the traditional policies that are still available.

The hybrid LTC policies showing the fastest growth are employee benefit group life insurance policies, which include a defined LTC or “chronic illness” benefit, Comfort said. For example, if an eligible employee buys $100,000 of group life insurance, he not only can accelerate that death benefit for LTC but may also get a doubling of the death benefit amount (e.g., $200,000) for LTC.

Another look at traditional LTCI benefits

Comfort pointed out two features of traditional LTCI that should not be overlooked:

The ability for a couple (married or not) to “share” their benefits. For example, if each spouse or partner has a 4-year benefit period, the shared benefits rider allows them to use the full 8 years of coverage for either or both, in any combination, including having any unused benefits roll over to the surviving spouse or partner at the death of the first. “This is not a “new” benefit, but it’s getting a lot of new attention. Two hybrid carriers now offer a version of this as well: One America and Nationwide, Comfort said.
The ability to have Medicaid Partnership asset protection. This is only available through a traditional LTCI policy, which has an automatic benefit increase inflation rider added. In 45 states, if a traditional LTCI policy is purchased with the proper inflation rider, it will be Partnership certified. This means that if the policyholder goes on claim and uses up all of his or her benefits and then applies for state Medicaid LTC, the state will allow that person to fully protect from the Medicaid spend-down and estate recovery an amount of assets equal to what e private LTCI policy paid in benefits. “Again, this is not “new,” Comfort said. “The concept goes back to 1988 when four states (CA, CT, IN, and NY) started trial Partnership programs. It was seen as so successful that Congress opened the program up to new states as part of the 2005 Deficit Reduction Act. This Partnership Medicaid asset protection is fully portable to or from any active Partnership states, except California.

The market is also seeing a growth in “short-term care” policies, Comfort added. These provide coverage for only six months to a year and have a much reduced and simplified underwriting process. “These are great for people who have no other options health-wise, but they can be very complicated to understand, especially in trying to get home care benefits paid,” he said.

More options for consumers

Tom Riekse, managing director of LTCI Partners LLC, also shared additional options that are available to consumers. Riekse said that when he thinks of LTCI, he thinks of two kinds of products: health insurance-based “traditional” or “standalone” LTC Insurance, and Linked Life/LTC plans.

He pointed out that while it is true that traditional LTCI has not been growing recently, sales are steady. Often people will search for information on traditional LTCI and articles about in-force premium increases that have occurred in the past. “To our knowledge, products sold in the last 10 years have not had any in-force rate action. Traditional LTC offers the most leverage per premium dollar and is great “pure” protection,” he added.

The other type of LTCI is provided by linked Life/LTC plans. These have improved greatly in the last few years, Riekse said, and some of their advantages include:

Built-in automatic inflation protection, such as 3% or 5% compound.
Choice of pay periods, including single play, 10-pays and lifetime pays plans. All premiums are guaranteed.
The choice of policy benefits that either have fixed, guaranteed growth or newer options that tie growth to investments, either through a variable product or a fixed index product. “For younger buyers, the growth over time could be substantial using stock indexes,” he said.
Plans that offer either reimbursement benefits (for actual LTC expenses) or cash indemnity (regardless of expenses). These are helpful for people who want to provide care for a family member, but still receive benefits from the carrier.
Plans that break out the LTC portion of the premium so that they can be paid pre-tax through business, or policyholders can use HSA funds to pay for the premiums.
Joint policies that allow two people to share benefits – for married couples – but also for others living together.
Unlimited lifetime coverage

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