I get it.
Long-term care isn’t something you work on daily. You’re not comfortable discussing the subject, and you’re not confident you can answer all your clients’ questions.
If you take one lesson away from me, let it be this: Long-term care IS overwhelming. And that’s EXACTLY why you need to help your clients create a plan. You’re accountable to them and their families. Your ability to handle complex topics is exactly why your clients work with you.
Here are a few questions to get started:
Look at this from another angle. Yes, the planning conversation can be hard. But what kind of conversation will you be having with your client’s spouse or children if you don’t help them create a plan?
It will be far more overwhelming to help them make decisions and find funds in the middle of a care event. I can promise you that.
You don’t have to have all the answers. You just have to ask the right questions. Still not ready? That’s where we come in.
If you have ever ridden a roller coaster, then you have a pretty good idea of what the long-term care market has gone through over the last few years.
Carriers have gotten out of the market.
Costs have gone up.
And let’s not even get started with rate increases.
Now that I think about it, maybe a roller coaster isn’t the best analogy. Instead, anyone up for a little whitewater rafting?
Be prepared for some scary moments and the chance of experiencing a face full of water when it’s least expected. Or worse, there’s that one person who falls out of the boat. (Although, with all the safety precautions taken, hopefully that scenario is less likely.)
And throughout the whole ride, the river guide is giving advice to help you make it through the rough patches, with the promise that all will be smooth in the end.
There’s some anxiety when going through the rapids, and you might even have second thoughts whether you should have even come along for the ride. Despite that, one thing remains certain: You NEVER, NEVER, NEVER, just jump out of the boat. You stick with it, ride the ups and downs, and know that there will be a change to the flow coming up soon.
It’s the same with LTC planning. We all know that pricing has changed. Carriers made assumptions that were incorrect and mispriced blocks of business. Not only that, they gave the farm away with 5% compounding inflation and lifetime benefits. How can a carrier ever be profitable when trying to manage an unknown risk? But, what happened, happened.
We can’t hide from the mistakes of the past. Instead, we need to keep our eyes forward and focused on the end goal. We need to adapt to the changing market, not jump ship. We can’t try to sell policies the way that we used to. We need to be better, plain and simple. But how do we do that? What can we do to keep us in the raft?
Let’s start by changing our recommendations to our clients. Most often, we lead with the Cadillac plan. Buy the most coverage they can get because the cost of care is through the roof and continuing to rise. But how has that approached worked out?
Here’s what typically happens: The client says, “Wow, that is too expensive, and I could never afford that!” They walk away not doing anything. As advisors, have we done anything meaningful for our clients in that situation? No. We just wasted their time — and our time as well.
Don’t just check the box on a conversation.
Use the resources available.
Nobody wants to go to a nursing home and they are likely to do whatever they can to stay out of one.
So, that leads us to look at the way that we are designing cases. It’s time to change our mindset. Some coverage IS better than no coverage. Yes, if we show a smaller policy we probably won’t cover 100% of the cost of the care. But have you ever had a client send a check back because it wasn’t enough? I haven’t.
There is no silver bullet when it comes to developing a plan for LTC, but there are a lot of different options out there. Being better means being open to different planning scenarios. Remember – the product is just the funding option for the overall plan.
So the next time you are having a long-term care planning discussion, don’t jump out of the boat. Be persistent, relax and know that your guide will help you get through the rapids to the calmer waters that await you.
Need a guide?
Become a part of the Just Ask movement.
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Chad Eyrich is proud to help keep families together with long-term care planning. He helps advisors and their clients avoid the potential financial devastation of an LTC event by providing strategies around traditional, asset-based and linked-benefit insurance. In addition to earning his Long-Term Care Professional (LTCP) and Certified in Long-Term Care (CLTC) designations, Chad has a life and health insurance license, and a property and casualty insurance license.
Finding the Funding for Long-Term Care (LTC)
You’ve identified a client and had the conversation. You know your client would benefit from a funding[CT1] plan for long-term care and is ready to get started. Now what?
In recent years, more and more long-term care solutions have become available. And while they offer a lot of flexibility, the choices can seem overwhelming. Fortunately, your Ash LTC team is here to help you understand what the products do, and how to design a plan for your client.
Are linked benefits the solution?
Linked benefit products have taken a prominent role[CT2] when it comes to LTC planning. And while they won’t be the answer for every client, it’s worth having a basic knowledge of how they work, and what goals they can help your clients reach.
Let’s look at a case study to see how where a linked benefit product might be a good fit.
Suzie and Tom are active 60-year-olds who take good care of themselves. They do not expect to need LTC and have not been impressed with what they’ve heard about traditional long-term care insurance However, they’d like to leave an estate for their three grandchildren and recognize that an LTC event could destroy their financial legacy. When they discussed their concern with their advisor, she suggested linked benefit policies. They can each purchase a policy that starts paying benefits when the insured needs LTC or dies, whichever occurs first.
The advisor helped Tom and Suzie design their policies to:
In essence, this strategy uses the death benefit that would be paid to their grandchildren to help “self-fund” the first two to three years of long-term care. The insurance should cover at least a substantial portion of LTC costs thereafter, until the coverage runs out. Naturally, the cost of this insurance depends on gender, health, resident state, when the policy is purchased, etc.
If your clients are interested in leaving a legacy but are concerned that an LTC event might make that impossible, let us know. Your Ash LTC team is here to help you design a plan, find the funding and exceed your clients’ expectations.
[CT1]A plan for LTC does not necessarily involve insurance. Insurance is a funding mechanism
[CT2]“Front seat” seems to overstate as more stand-alone policies are still sold than linked benefit
[CT3]Moved up to highlight more and mentioned inflationary consideration
[CT4]Just checking as to whether we are typically quoting 7 years now.
[CT5]Moved up with the 7 year comment and changed “would” to “could”.
In December, John Hancock will begin petitioning State Departments of Insurance for in-force long term (LTC) care rate increases.
John Hancock anticipates an average increase of approximately 30% across most of its LTC business. The approval process could be as short as six months, or take as long as a couple of years. The increases will only be implemented in a particular state once they are permitted to do so.
John Hancock plans to offer benefit adjustment options to help insureds mitigate the impact of the rate increase. We anticipate plans to offer at least two premium neutral options: the shared cost option and reduced inflation landing spots.
Many of you have already dealt with LTC in-force premium increases. You understand the strain and confusion a premium change can bring to your clients. Ash Brokerage can help. We can provide the resources to help evaluate the options presented to your clients. There are many factors that should be taken into consideration before a decision is finalized.
John Hancock will offer a limited number of options, but you may find additional options by contacting John Hancock directly.
The Ash Brokerage LTC team is prepared to help you and your client navigate the increase options. When the notification arrives, please let us help answer the questions and evaluate the options. Contact the Ash LTC team for help.
Effective Jan 1, 2017, state insurance commissioners agreed to make two significant changes to the way carriers are required to price and reserve for life insurance products.
While these changes were technically effective in 2017, states provided insurance companies three years to comply, or until Jan. 1, 2020. As is often the case, insurance companies have delayed implementation to maximize the benefits of the current regulatory framework, but now the time to make changes is arriving.
For the remainder of 2019, there will be a flurry of product reprices as carriers scramble to comply with these new guidelines by the end of the year. Before we can understand what’s to come, let’s dive into what is changing and what it means to you.
As insurance products have evolved over the last several decades, the regulatory framework for proper reserving has often lagged. Universal life products and universal life with “secondary guarantees” have grown significantly in market share over the last few decades and this has challenged regulators to create a framework to ensure policy promises are sound and secure. Principle-based reserving (PBR) is the latest attempt to ensure that carriers are adequately capitalized on the insurance business they are putting in place. Specific to the rationale for PBR, the National Association of Insurance Commissioners (NAIC) stated the following:
PBR is a significant change in underlying laws and regulations to solve a problem created by our current regulatory framework. The issue lies with laws and guidance on how a life insurer is required to book its reserves. Insurers set aside funds, known as reserves, to pay insurance claims when they become due.
Prior to PBR, static formulas and assumptions were used to determine these reserves as prescribed by state laws and regulations. However, sometimes this rule-based approach leaves an insurer with excessive reserves for certain insurance products and inadequate reserves for others. The solution is to "right-size" reserve calculations by replacing a rule-based approach with a principle-based approach.
The overall pricing impact of PBR changes have appeared to be relatively minimal. The carriers that have already released pricing on 2020 compliant products have made relatively small tweaks to pricing, with modest cost reductions in some areas and increases in others. Technically speaking, the PBR changes are not requiring the carriers to reprice their products but will be a significant factor in how they price products today and beyond.
When carriers are pricing product and regulators are setting reserve requirements, mortality assumptions must be made based on a standard. These mortality tables are updated periodically. The last update was the adoption of the 2001 CSO. For policies effective in 2020 and beyond, the NAIC will require carriers to comply with the 2017 CSO. The 2017 CSO will reflect a more robust data set for mortality and will generally reflect overall increases in life expectancy. The new mortality tables will certainly play into the PBR discussion as it relates to the way in which companies reserve for policies. Furthermore, the major impact of the 2017 CSO adoption is that all products must be repriced to comply with the 2017 CSO rather than the current 2001 CSO.
As the 2017 CSO is adopted, it will have notable pricing and product performance impact on Modified Endowment Contract (MEC) limitations. Every insurance contract has a methodology to comply with Internal Revenue Code Sections 7702 and 7702A, which, among other things, determines how much premium can be paid into a contract without creating a MEC. The calculations for compliance with these tests are based on mortality assumptions. Shorter mortality assumptions allow for a higher non-MEC premium, while longer assumptions allow lower non-MEC premiums. When carriers adopt the 2017 CSO, life expectancy assumptions will be generally longer, which will lower the amount of premium that can be paid into a contract without creating a MEC.
To use an overly simplified example, a 50-year-old male acquiring $1,000,000 of coverage in a product on the old mortality tables could fund a policy with an annual premium of approximately $56,000 for a period of seven years. On the new mortality tables, that same client would be limited to funding his policy with only about $47,000 annually over seven years. Because the non-MEC funding level will be less, the net amount at risk in the contract will increase and cash accumulation products will likely be adversely affected. It remains to be seen if carriers will be able to offer lower cost of insurance charges or other value to offset this impact.
Because all non-compliant policies must be placed no later than Dec. 31, 2019, carriers will be rolling out new product pricing throughout the year. Many carriers are waiting as long as possible to make this transition and are not disclosing their pricing until the transition period. There could also be additional repricing in early 2020 for carriers to maintain their competitive positioning relative to peers.
Producers should be aware of product pricing changes, transition deadlines and new pricing impacts on any active cases. There will certainly be some clients that will significantly benefit from the old pricing, which may not last much longer. This is especially true for those considering a cash accumulation policy funded to the MEC limit.
© 2018 Ash Brokerage LLC.