It is no secret that humans are creatures of habit and we cling to that of which we are familiar. Many advisors take this to the next level when presenting long-term care insurance plans to their clients. Whether it is showing the same carrier that they have always shown or using the same benefit features they always have; if variety is the spice of life, then their planning approach is very bland.
Due to the sustained low interest rate environment and adverse claim experience of the past decade, carrier product offerings have drastically changed and continue to do so. We are seeing carriers leaving the market, new linked life/ltc carriers entering the market, and carriers tweaking their offerings on a regular basis. At times it seems as if a new product is rolling out with the carriers on a monthly basis! In an environment of constant change you need to learn to adapt or you will be left along the wayside.
Here are three of the most common mistakes I see advisers make in long-term care plan design:
- Reluctance to stray away from 5% Compound Inflation protection. Many long-term advisors have shown 5% Compound for as long as they can remember and it’s like an old comfortable pair of shoes to them. However, carriers have been hit hard financially on their 5% compound blocks of business. The primary reason carriers still offer this rider is due to regulatory requirements to do so. Instead of showing 5% compound your best bet is to show your client a plan with 3% Compound inflation protection or better yet propose a higher monthly benefit amount and remove inflation from the plan all- together. The pricing on many plans nowadays allow for some huge monthly benefits for the same cost as a plan with inflation and a smaller benefit amount. When you start with a big monthly benefit, you are doing the job of the inflation in less time and often times at a lower cost
- Quoting Survivorship - Further evidence of some advisors inability to let go of their favorite riders is requesting the "survivorship" rider. This rider, which waives premium for a surviving spouse or partner, was very popular years back and I still see a large majority of people requesting it on their request for proposals even though it is extremely hard to find a plan that still offers this feature. In instances where you can still purchase survivorship, the cost is likely so high that you are not doing your client any favors by putting it in their plan design anyway. The wiser approach is to go light on the bells and whistles of yesteryear and go heavy on the monthly benefit amount - pure and simple.
- No carrier diversification. Another rut that I see advisors get stuck in is that of carrier loyalty. America is a country of brand loyalty, whether it be what brand of vehicle you drive, what kind of beer you drink, or the clothing & shoes that you wear. In my opinion, this is not the approach to use in choosing a long-term care insurance plan. As new products and new design features come and go, it is important to hunt down the best plan and premium for your clients. Just because a carrier had a great plan in 2012 doesn’t mean you should blindly be recommending them to your clients now.
Like other aspects of financial planning, diversity is key and the more carrier options you explore the better the outcome. An open mind to carriers and plan design will allow for more and better plan design options. I take pride in telling advisors that we include a comparison with all quote requests because it shows that we are looking at different options with different carriers and we are doing all that so we can to get their client the best deal and the best plan for their needs.
Change is inevitable but how you choose to deal with it and react to it in your plan design is your choice.