Disability-To-LTC Conversion Policies Are Here To Stay
By Guy W. Bertsch
Some of todays individual income protection policies are designed to address a variety of incomes and life stages.
They do this in a hybrid design that provides income protection that can start early in the clients career, be upgraded as income rises and be converted to long term care protection during retirement.
Not a “flash in the pan,” these contracts represent a new generation of income protection insurance called “conversion” policies. These contracts evolve as people age and needs change, and they address underserved segments of the disability insurance market at the same time.
Producers should feel comfortable promoting these policies, especially if the producers are aware of how to overcome misconceptions about disability and LTC coverages. (See chart for tips.)
Given current demographics and trends, the timing couldnt be better for selling conversion policies. In fact, research estimates that more than 85% of the traditional high-income customers now own individual income protection coverage, but that fewer than 15% of middle-income professionals own such policies. The potential sales growth is estimated at $4 billion, based on analysis of U.S. Census data.
The industrys traditional disability income product was highly adapted to the needs of a niche market. By contrast, the newer conversion products respond to changes in the economy that affect typical American families.
For example, an estimated one-third of all families with children are single parents and 50% of U.S. households now depend on dual incomes. This suggests there is a growing need for an income product that meets the needs of a younger, more nontraditional audience–one that will experience a dramatic change in lifestyle if income should be lost or reduced due to disability.
Meanwhile, by 2025, its expected that there will be more than 78 million people aged 45 to 64. These individuals will have reached their peak earning years and will be concerned with protecting their financial assets going forward.
The conversion policies have significant product features that should appeal to such a population. These features include: a range of disability definitions, proportional benefits, expanded catastrophic coverage and return-to-work assistance.
The most progressive policy feature lets insureds convert to LTC coverage–without evidence of insurability and even when they are on disability.
This conversion feature should be of particular interest to younger clients who are becoming more aware of the need for LTC coverage, perhaps through witnessing parents or grandparents undergo an LTC event. They quickly see that the need for LTC can erode life savings. As a result, they realize that, in retirement, what will matter most is preserving assets, not protecting a paycheck.
The conversion policy responds to this situation. Its a product in which both buyers and sellers win.
For clients: The distinct advantage for clients is the “one-stop shopping” appeal. This comprehensive, yet customizable, individual income protection policy will help clients protect their earnings now while shielding assets into retirement. Also, the cost of upgrading to an LTC policy from this contract is less than purchasing a new, stand-alone policy. Further, the plan effectively means the client is buying “insurability,” since the product bypasses underwriting at the time of conversion.
For relatives of clients: Discussing the LTC component of the product can open up discussions about the needs of the clients aging parents or even spouses who dont work.
For producers: Conversion products allow producers to avoid focusing solely on product sales. They can start addressing their clients changing needs on into retirement. By initiating the income protection sale today, producers are better positioned for an easy future LTC sale. And, with each policy change comes a commissionable event that benefits the producers future revenue. The discussion can lead to exploring other financial needs as well.
Consumers today are becoming increasingly savvy about their finances. As they grasp the real benefits of income protection, they will have no trouble connecting the dots between individual income protection insurance and long term care insurance.
The combination of these coverages is a trend that is here to stay.
Guy W. Bertsch is vice president-LTC markets and products at UnumProvident Corporation, Portland, Maine. His e-mail address is firstname.lastname@example.org.
Reproduced from National Underwriter Edition, February 24, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.