Helping Clients Find The Optimum LTC Benefit Design
Current long term care insurance products include a wide array of new features and options.
This breadth of product has created unprecedented opportunity for producers to help clients select the most appropriate benefit design and payment mode for their situation.
What Your Peers Are Reading
Thats the good news. The bad news is, according to various articles, advisors still struggle with how to make basic choices such as whether to elect short or long deductible periods. Additionally, many of the newer features are more complicated than their predecessors, making it more difficult for producers to present recommendations that clients can grasp.
Fortunately, new software tools are emerging that can help producers make efficient and effective analysis in ways the consumer can understand. Lets look at an example.
In Chart 1, you will see a sample analysis. Its purpose is to find the optimum benefit design for the client based on the elimination period (EP) selected.
Here, the most favorable outcome for the client occurs when the benefit design and premium result in the lowest asset erosion due to a care event. (Note: Projections will vary depending on data input controlled by the advisor or client.)
Assuming a care event will occur, the optimum benefit design of a LTC product will project the lowest economic impact to the client who owns LTC insurance.
In this scenario, “with insurance” includes both the LTC insurance premium and the “net self-funded” care. (“Self-funded” is insurable care that the policyholder pays out of pocket for expenses not covered by the insurance, due to the benefit design decision made at policy issue.)
This scenario also includes a factor for “loss of investment opportunity.” This loss occurs due to the LTC self-funded care cost and LTC premium expenditures the insured makes instead of investing the money elsewhere. It is an important component to include in assessing the full cost of having LTC insurance or not. The factor used here is a 6% rate of return on the amount (premium plus care cost).
The chart shows four different scenarios: Design A, with a 365-day EP; Design B, with a 180-day EP; Design C, with a 90-day EP; and Design D, with a 30-day EP. The premium rate tables used are generic (average) rates.
The chart assumes the client is age 55 and needs three years of LTC, beginning in year 28 of a 30-year estate plan. The estimated care cost, in todays dollars, is $200 a day. The plan is set to increase this daily benefit amount 5% annually. The plan has no limit on the number of benefit years.
(Note: To shorten the illustration, factors for asset liquidation, taxes and other advanced variables were not included.)