Helping Clients Find The Optimum LTC Benefit Design

What is the recommendation that results from this analysis? Should the advisor advise selecting a short or an extended elimination period?

Contrary to commonly accepted assumptions, for this client, a short (30-day) elimination period in this comparison provides the lowest asset erosion for the surviving spouse or heirs. But the analysis also found that a zero-day EP would be less favorable than the 30-day EP, so the best choice is very specific.

Individual carrier results would vary from the above, depending on rate tables. Still, the chart makes the point that a 30-day EP vs. a 365-day EP can make a big difference!

In this case, in fact, the choice amounts to a quarter million dollar decision. Table 1 shows why.

As you can see, the 365-day EP results in the clients estate suffering $248,000 more in asset erosion than an identical scenario using a 30-day EP.

Here are the numbers: Under the 30-day EP, the impact of the care event with insurance is $216,000. If 365-day EP is selected, impact jumps to $464,000 ($464,000 – $216,000 = $248,000 more asset erosion).

Thus, the projected impact of care on the clients estate asset erosion is identical whether care needed for two years or 30 or more years. Without insurance, three years of care amounts to approximately $1 million in each scenario.

In addition to the above summary, the data show that Scenarios A and B have a “net self-paid” care cost, due to the 365- or 180-day EP, that is greater than the “economic value” of a lifetime of premium payments. (See Table 1.)

For Scenario A, for example, this value equals $51,000 in total premium payments plus the growth on that money at 6%, compounded, over 28 years. (This growth reflects the future value of the 28 years of premium payments, if the insured had invested the premium amount in a side account earning 6%, rather than purchasing LTC insurance.)

A point to keep in mind is that the total cost of care in this scenario would be $954,000, regardless of the design decision made.

In sum, the “optimum benefit design” model shifts emphasis from premium to finding optimum client value. Client value is expressed as lowest possible LTC event impact “with insurance.”

For producers and clients, this means that comprehensive modeling techniques that are focused on wealth preservation simplify the decision process. Integrating all significant financial considerations leads to higher understanding and confidence in the quality of the decision, whether client has typical or substantial wealth.

, CLU, ChFC, is president of LTCi Decision Systems Inc., an Orange County, Calif., firm specializing in long term care software development and consulting. His e-mail is [email protected].

Reproduced from National Underwriter Edition, July 7, 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.