Although you are probably tempted to use a "Sales 101" approach, most agents would rather accommodate clients by gutting benefits than by using a different tactic. Here, then, are three practical methods for reducing premiums while still providing meaningful LTC benefits.
1. Shorter benefit periods
Recently, the American Association for Long-Term Care Insurance (AALTCI), in conjunction with Milliman Inc., conducted a study of LTCI policyholders and their actual benefit usage. Among other findings, the study found that a three-year benefit period could knock as much as 54 percent off the cost of a lifetime benefit period; about 13.1 percent of claims exceed three years. If three years seems a poor substitute for the peace of mind of a lifetime benefit, consider that even a five-year plan could save as much as 39 percent compared with a lifetime benefit, while only 4.5 percent of claims exceed five years.
2. Reconsider 5 percent compound inflation protection
Although there is no actual financial basis for the "5 percent compound" recommendation, it has persisted in LTCI sales.
Yet doing this can double the price of a policy, and obligating policyholders to this fixed rate of return during a low-interest rate environment put an extreme strain on many LTCI carriers during the last decade.
Today, it appears that housing and labor will be the driving forces of future home care and assisted living costs, and insurers have responded with designs based on the Consumer Price Index, which, by their structure, mean that applicants would never overpay or underpay for inflation.
One needn't stop there: Many see 3 percent compound inflation as increasingly attractive in light of stagnant long term care inflation, 3 percent compound costs roughly 23 percent less than 5 percent compound, and it meets the under-61 partnership requirements in most states (30 of 33 as of this writing). With one eye on partnership and another on the cash register, another carrier offers a tiered inflation option, which steps down through the partnership age bands as the policyholder ages.
Others have revisited the guaranteed purchase and future purchase options by eliminating the flaws associated with past designs and allowing for multiple opt-outs and conversion privileges. Such designs target the "sandwich generation" client in an attempt to lock in insurability today and leave buy-ups for at time when money isn't as tight.
3. Remind budget-minded clients they have options
Cost of care surveys seem to be everywhere, but it's rare that an agent truly digests the information. If you researched care in Florida, the rate for a semi-private nursing home room emerges at roughly $75,000 per year. Assisted living runs only $30,600 per year, and a robust eight-hour-per-day, five-day-per-week home health care plan tops out at $42,000 per year.
Given such information, it's a tragedy that so many producers are trapped by old habits and continue to try to make the same sale, the same way: "If you ever needed care, you'd like to receive it in your own home, not in a nursing home, right? So I'll design a plan with the most robust home health care benefits!"
This sounds convincing, and in a perfect world, few could argue with it. However, in a world where everyone is stymied by the high cost of LTCI, agents must not feel compelled to insure assisted living and home health care at the same rate as nursing facility care.
Costs have maintained the 50 percent ratio for decades. For clients for whom affordability is truly an issue, LTCI should insure against the catastrophic costs of nursing home care, with assisted living and home health care right-sized around 50 to 75 percent.
Less expensive co-insurance products can also serve the same function as reducing the home health care or assisted living rate. In either event, the savvy producer might recommend their clients use the savings to purchase a cash rider in order to defray the miscellaneous expenses likely to occur during a home health care claim.
Does this work?
You may be wondering whether these ideas actually reduce premiums while offering meaningful benefits. Below are two examples that compare what might be termed "the old way" and "the new way." Example A is based on a 59-year-old single applicant in Florida with a $200-per-day benefit, while example B is a 59-year-old married applicant with a $6,000-per-month benefit.
Now you and your clients can make an informed decision.
Stephen D. Forman is senior vice president of the field marketing organization LTCA. He can be reached at 800-742-9444 ext. 12 or email@example.com.