BY ED MCCARTHY, CFP, RICP | AUGUST 31, 2015
Ask a long-term care (LTC) advisor about his or her approach to getting clients insured and you’ll likely hear, “Some coverage is better than no coverage.” That response reflects the reality that clients often don’t select the optimal policy design because they consider it too expensive.
So how do you deliver a proposal to get something in place that still meets the client’s needs? Timothy Kelly, CLTC, vice president, sales with Individual Commercial Brokerage Inc. (ICB) in Rockaway, N.J., describes how advisors can adjust policy benefits to meet clients’ circumstances and constraints.
Planning with Life Policy Riders
One possibility is to consider a life policy with a LTC-rider to accelerate the death benefit plus a continuation of benefits rider. That combination allows the insured to continue receiving a LTC benefit—typically three times the policy’s death benefit—after the accelerated death benefit has been exhausted. “They are a little bit more expensive because of the additional long-term care benefits but you can pay for them not only as a single premium, but as an annual ongoing premium, a lifetime premium, or even with a flexible pay, like a 10-pay or a 20-pay,” he said. “So there’s a lot of options in the marketplace now where you can really try to fit them into most people’s budgets.”
Life policies without a continuation of benefits rider are less expensive than those with the rider. That design can work in cases where the client is seeking life insurance as the primary benefit and the LTC benefit is a secondary benefit or the client can’t afford the continuation rider.
The least expensive life option is a policy with a chronic illness rider, said Kelly. It’s essentially a traditional life policy that allows the insured to accelerate some portion of the death benefit to pay for LTC. There’s no additional premium for the chronic illness rider, he said, and the underwriting is to life insurance standards instead of LTCI’s stricter requirements.
“You can get that rider as long as you can get a Table 4 or better in the life insurance rating class in most products,” Kelly said. “If you need long-term care you can file a claim for that, and they will give you some portion of the death benefit based on your mortality at that point in time and your policy would be finished at that point in time,” he explains. “So you may get 70 percent of the death benefit; they [the insurer] keep the other 30 percent of the death benefit and your policy terminates.”
Planning with Traditional LTCI Riders
Kelly said that advisors must demonstrate clearly the value of adding any rider to a LTCI contract that will increase the premium. Nonetheless, he cites two riders as adding significant value. The first is a waiver of the 90-day elimination period for home health care benefits. He believes that rider’s additional cost—usually in the 10 percent range—is worth it.
Kelly also favors the shared benefit rider, which allows couples to share each other’s benefits. That feature allows insured couples to buy shorter (and less expensive) individual benefit periods. “Using the shared benefit rider for couples makes a lot of sense and we’re seeing that purchased 60 to 70 percent of the time with couples,” he said. “You can generally get that rider for somewhere between 10 and 15 percent, depending upon the benefit periods that you purchase.”