Friday, August 1, 2014

Navigating the Long Term Health Care Environment

Long Term care is a challenging market to enter.

Traditional LTC products can be expensive, the premium is not guaranteed, and the products are changing on a regular basis.
Below are the top reasons for NOT purchasing long term care insurance based on Genworth’s Let’s Talk brochure:

  1. Confusion – People say it is difficult to understand the costs and what is paid by Medicare, Medicaid and long term care insurance.
  2. Denial – People do not believe that they will need Long Term Care insurance
  3. Mistrust – Clients are concerned that they will not be able to rely on a long term care insurance company when they need it.
  4. Discomfort – It is too unpleasant to think about becoming ill and needing long term care.
With regards to LTC planning, the first step is educating your client about the need for protection. Explain that Long Term Care planning is not about buying a specific policy, rather it is about protecting their hard earned retirement savings from the life changing event of a long term health care need.

The Traditional Long Term Care policy, as expensive as it can be, is still the best way to provide the most protection for a long term health care event. However, since clients have voiced many reasons for not buying a traditional LTC plan, there are now other options that can help your clients fulfill at least part of their need for long term care protection. These alternatives may also alleviate some of the reasons for not buying a traditional plan.
Alternatives to Traditional LTC products can be grouped into 3 sections.

  1. Hybrid products: Hybrid products are often a single-pay life insurance purchase that is leveraged into LTC care.
  2. Chronic illness/LTC riders: Add-on Chronic Illness/LTC riders are typically Universal Life contracts with an additional rider, which may add up to 20% additional premium to the cost of the life insurance. This rider allows for the face amount to be accelerated on a dollar for dollar basis for chronic/LTC care.
  3. No cost chronic illness riders: No cost riders have built in chronic illness benefits that calculate the available amount (a discounted rate) of benefit at the time of claim.
Hybrid Life/LTC plans are the oldest alternative to traditional LTC. Lincoln MoneyGuard and Genworth’s Total Living Coverage are the most used versions of these products. This type of plan is often sold as a re-allocation of assets by using the built in ROP features, and death benefit to address the “what happens if I don’t use it” objection voiced with Traditional LTC.

Add-on Chronic/LTC riders on Life insurance contracts provide an acceleration of the planned death benefit while the insured is still alive. This benefit is triggered by the need for assistance with 2 of 6 ADL’s or a cognitive impairment. Like all insurance policies, there are many variations, and nuances to learn, and you need to be careful not to over simplify the differences. These are paid riders that add to a base premium cost.

  • Chronic Illness riders, such as American General’s Accelerated Access Solution Rider, or Prudential’s Benefit Access Rider, are filed for tax purposes as a 101g acceleration of the death benefit. This means that these are chronic illness riders and require the need for assistance with 2 of 6 ADL’s or a cognitive impairment, to be permanent. However, chronic illness riders do not require any special LTC training. Many of these products offer a monthly payout of 2% of the initial death benefit. (American General has other available options for payouts as well, please see our chronic illness rider spreadsheet for more details)
  • LTC riders are filed for tax purposes as a 101g and 7702B. This additional filing changes the qualifications required to go on claim. While both chronic illness and LTC rider require the insured to need assistance with 2 0f 6 ADL’s or have a cognitive impairment, chronic illness riders require that need to be permanent. LTC riders require that the need of care is for at least 90 days. Plans filed with 7702B (LTC) may require specific LTC training depending on the state regulations. Genworth’s Accelerated Benefit Rider for Long Term Care Services, is an example of a 101g & 7702B filing. Since Genworth has such a large traditional LTC market, they used their experience when they developed their LTC rider. With Genworth’s plan, the insured will designate a maximum number of months of care, 24, 36 or 48 months. The maximum monthly benefit for LTC care is calculated using the Initial death benefit, divided by the selected number of months of care. Other carriers that offer an LTC rider are Minnesota Life and Transamerica. Those carriers offer indemnity benefits using the 2% of death benefit per month, similar to the chronic illness riders.
No Cost Chronic Illness riders, are the third alternative and offer a reduced benefit for chronic illness care with no additional premium. The following is an explanation of North American’s Chronic Illness Accelerated Benefit Rider. The claim triggers are the same as with the Add-on Chronic Illness riders however, the difference is that the benefit must be elected each year by the insured and the benefit can only be paid out as a lump sum once or twice per year. The death benefit would be reduced by the amount the client chooses to accelerate, however, the actual amount paid to the client will be less than the amount accelerated. The reason for the difference is a discount that is applied to the acceleration based on the insured’s age, premium class, interest rates, etc. There is also a $200 fee applied to each election. This type of chronic illness care is more difficult to use for planning purposes since you do not know exactly how much benefit you will receive. However, since there is no additional premium is required, it is an excellent benefit for the cost.

Long Term care planning is an essential piece to protecting your client’s family and their hard earned assets. The continuum below is a very basic way to help determine the level of protection they are interested in. Traditional LTC provides the most protection for a long term health care event and is on the far left side, while the No Cost Riders provide the least amount of protection on the right.

Traditional LTC  >  Hybrid Products  >  Chronic/LTC Rider  >  No-Cost Chronic Illness Rider

All of the above options offer much needed protection for your clients. The amount they choose to protect is of course up to them, but by showing them the many options that are now available, you are helping them alleviate at least some of the potential risk associated with a life changing long term health care event.

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Peter J. Zinnen, CLTC | Vice President
The Thompson Agency, Inc. 
85 River Road | Collinsville, CT 06019 
800.842.8289 ext. 300 | Cell: 860.214.1639
Fax: 860.693.4547

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