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LTCI : The Flexible Product

LTCI can be appropriate for younger and middle-market clients.

By David Connell

Raymond Smith, CLIC, CSA, CLU, LUTCF, knows a thing or two about selling long-term care insurance. After all, 85 percent of his business is generated by LTCI sales and he teaches a class on the subject—a class the state of Colorado requires every agent selling LTCI to take before being licensed. Smith, a MassMutual agent, believes that the product is often under-sold and many prospective clients—such as younger and middle-market consumers—are missing out on the benefits of LTCI.

According to Smith, the LTCI sale begins with the product’s fundamental benefits—preserving wealth and quality care—which can be appreciated by those around 40 just as much as their near-retirement counterparts.

“We can sell LTCI as an instrument to preserve assets, so you don't have to spend down,” Smith says, “and to ensure that you are going to receive care where you want to receive it—usually at home—and from whom you want to receive it.”

The economic benefits
Smith adds that agents can often demonstrate to younger clients the economic advantages of purchasing LTCI now, rather than waiting, say, five years. He notes that the cost of coverage is based on the client’s age at the time he applies for coverage, his health and the amount of daily benefit he wants.

“If you wait five years, you’re going to save five years of premium, that’s true,” Smith says. “However … if you want to cover the cost of care it’s going to be higher, because inflation keeps on rolling along and the cost of long-term care services has been growing. Not only that but most of us don’t become healthier as we age … so there’s a huge risk that you might not be eligible for insurance at any cost if you wait five years.”

The long-term gift
If younger clients still aren’t ready to purchase LTCI for themselves, Smith says, many may consider purchasing it for their parents as a gift. He says that he has had several younger clients band together with siblings in order to purchase policies for their parents. He adds that this is often done when the children are, collectively, in a better financial position than their parents are.

Without LTCI, the children face two scenarios, he adds. One, parents are forced to enter the inferior Medicaid system, or, two, the parents have to move in with their adult children to cut costs. Smith finds that neither of these is appealing to children of aging parents. Oftentimes, when faced with these choices, children will find a way to help provide LTCI to their parents.

“When I do an annual review with younger clients I always bring up the subject of long-term care,” Smith says. “If it’s not something that’s suitable for them, I ask about their parents.”

The DI substitute
Finally, Smith notes that LTCI coverage is a flexible product that can be used as a substitute for disability income coverage. He says that in certain instances—such as when people work from home, are sole proprietors or are in high-risk occupations—clients are unable to secure DI coverage and an LTCI policy may serve as an adequate substitute.

“You can give somebody a $300 daily benefit, which would be $9,000 a month of insurance with no financial underwriting, other than the ability to pay, and the long-term care people don’t care if you work from home or not,” Smith says. “Here’s a situation where you can put in a DI substitute for somebody in their early 30s and, this is almost the best part, as they get older … now they have LTCI. And because we put 5 percent compound inflation on it, the benefit keeps up with the cost.”

Smith does caution that this LTCI substitute is only appropriate when someone needs DI coverage, but no one will write the policy. He adds that agents must clearly spell out the differences between DI and LTCI, including the varying benefit triggers. He warns, “You must make sure they understand that there are situations when a non-cancelable DI policy will pay, but an LTCI policy wouldn’t.”

For more on selling to middle-market clients, read June’s cover story “Insuring American Dreams.”


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