The Advisor's View of Long-Term Care Planning

The Surprising Similarities Between Traditional LTC and New Life/LTC Plans

Posted by Tom Riekse Jr | Jun 11, 2019 11:12:26 AM

 Hardworking businesswoman concentrating on her work as she sits paging through a binder of paperwork at her desk in the office

Imagine this scenario.  You are the financial advisor conducting a periodic portfolio review with a 55 year old single professional business owner.  She is happy with her investment performance, but is stressed because she is an only child and is dealing with aging parents, one of whom has dementia.  She's very active and has lots of friends but no children or living siblings. Frankly, she wonders what will happen to her when she gets older and may need care.  Because of this fear of having enough money to pay for quality care, the recent stock market swings are beginning to make her nervous and she wants to be more conservative with her investing approach.

You listen carefully .  You know that she would be a perfect candidate for long-term care insurance and could afford the premiums based upon her income.  Having a LTC Insurance plan could also allow you to recommend a more appropriate risk tolerance for investing.  However, you haven't recommended LTC Insurance for a while because you've been dealing with difficult conversations with clients who received premium increases.  Most of them kept their policies by adjusting benefits,  but it has been a big headache.  You've seem to recall that many carriers have stopped offering LTC Insurance but to be candid you really haven't kept up with all the changes.

As an advisor, what do you do?  The good news is that this client actually has many excellent choices to plan for care through LTC Insurance.

 

Just because several carriers have stopped offering traditional LTC Insurance in recent years doesn't mean that the product market for LTC has dried up. Instead, new carriers and products are replacing those old offerings and the market has something for every type of buyer.  There are over 12 carriers which offer either pure traditional coverage or linked/combination life/ltc plans.  

The growth of combination, or linked life/ltc plans has been steady in recent years, helped by the policies promise of guaranteed premiums and a cash surrender value.  At the same time, traditional LTC sales have lagged because premiums are higher and concerns about rate increases.

The primary difference between traditional and a life based product is, of course, the inclusion of life insurance - which often is not a primary need for many people planning for LTC.  However, although these LTC plans are built on a life insurance chassis the purpose of the product is to help plan for care. For many years most life/ltc plans featured single premiums, but the newer combination life/ltc plans offer extended pay periods which make it easier to compare  to traditional LTC.  Many newer plans also break out the LTC premium from the life premium so a consumer can see the cost of each.

The example below compares two products (from carriers which will remain nameless) - a leading traditional LTC plan and the latest product from a leading life/ltc insurer.  As you look at the comparison, you'll notice a lot more in common between the products than differences.  The things in common include the initial monthly LTC benefit, the total benefit pool, and the inflation increase adjustment.  For example, each policy provides a total benefit at age 90 of about $900K.

Again, the key differences are in the availability of a death benefit and cash surrender values plus the premium guarantees.  As a business owner, the client will able to deduct some of the LTC premiums as a business expense.

 Take a look at this side by side comparison:

 

Plan Parameters

Traditional LTC Insurance Plan

Recent Hybrid Life/LTC Plan

Premium

$4,696

$6,423

Premium Payment Mode

Annual premiums for life

Annual premiums to age 100

Guaranteed Premiums?

No (guaranteed renewable and designed to remain level)

yes

Premiums waived if on LTC claim?

Yes

Life Insurance Premiums - No

LTC Insurance Premiums - Yes

LTC Insurance Portion of Premiums

$4,696

$4,067

Initial Monthly LTC Benefit

$4,500

$4,500

Initial Total LTC Benefit Pool

$270,000

$270,000

Initial Death Benefit

n/a

$108,000

Inflation Protection (automatic policy increases)

3% compound

(both the monthly benefit & total pool of dollars grow automatically @ 3% compounded annually)

3% compound

(both the monthly benefit & total pool of dollars grow automatically @ 3% compounded annually)

Monthly LTC Benefit at age 90

$12,294

$12,294

Total Benefit Pool at Age 90

$783,219

$783,219

Death Benefit at Age 90

n/a

$108,000

Cash Surrender Value at age 90

n/a

$79,948

Guaranteed Minimum Death Benefit

n/a

$21,600

Type of Care Plan (benefits payable to policyholder)

Reimburses for professional home care, assisted living and skilled nursing.  Provides an optional cash benefit of 30% of the monthly benefit amount for information care. 90 day elimination (deductible) period, waived for home care

Cash Indemnity program with full monthly LTC benefit paid to policy owner.  90 day elimination (deductible) period, paid retroactively in month 4

In my opinion the client can't go wrong with either selection.  If the client isn't concerned about a death benefit or a return of premium then the traditional plan gives the most leverage per dollar of premium.  On the other hand, the combination life/ltc plan offers a cash indemnity feature -an attractive benefit. And, if she's worried about the chance of a premium increase ,  she may want to pay the additional premium for guaranteed premiums on the combination plan - providing peace of mind for her (and her advisor).

Of course, this is just one scenario and each client, couple or business will have it's own comparison, and some of them might be a little more clear cut than this one.  

What do you think?  Make your case below in the comments section:

 

Topics: New LTCi financing products, For financial professionals, Linked Benefits, ltc insurance, hybrid life/Long-Term Care

Written by Tom Riekse Jr

Tom Riekse, Jr., ChFC, CLU, CEBS is the Managing Director of LTCI Partners. He has been working in the long-term care insurance business since 1991 with an emphasis on communicating the value of LTC planning to advisors, employers and consumers. He has primary responsibility for all marketing and technology initiatives at LTCI Partners, and has worked closely with carriers and vendors to make LTC Insurance easier to sell and enroll. Tom received his undergraduate degree in from Hope College, Holland Michigan. He subsequently achieved his MBA at the University of Illinois at Chicago, with a concentration in finance and marketing. He holds the Certified Employee Benefit Specialist designation from the International Foundation of Employee Benefit Plans and the Wharton School and his Chartered Financial Consultant from the American College.

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