Selling Long Term Care Insurance? Think Inside The Boxes

By Jonathan J. Neal

Thinking outside the box is a popular training phrase these days. However, when it comes to selling long term care insurance, it might be better to think inside the boxes.

LTCI can be broken into four groups of boxes. Staying in the boxes that fit your skills and abilities will save you time and make you money.

Examine the fundamentals of the long term care market and youll find it can be broken down into four smaller market boxes. (See Box One.)

The first box is for those people who have limited assets and live within their means.

These people need long term care insurance but more than likely cant afford lifetime coverage with a 5% compounded inflation rider. If they can only afford $100 per day for two years, it may not be enough to cover future needs, but they are still emphatically better off than they would be with no coverage at all.

These are the clients that pay their premiums out of their income streams. This is “Mr. & Mrs. Everyday-Hard-Working American.” They are the people with whom you must take great care when putting a plan in place. Their incomes are limited, and they will have the hardest time keeping a plan in force if they receive premium increases.

Affordability, not only at the time of sale, but with an eye out for the future, is paramount in these cases.

The second box is for those people who have a good net worth but unfortunately need all their assets to live on. I know a couple that have over $3 million in assets but need every dime to maintain their present lifestyle. Do they need long term care insurance? Absolutely! Can they afford it in their present financial state? No way!

Now, if you are a planner, you have your job cut out for you. On the other hand, if you have made the decision to sell only LTC insurance and dont have a thorough understanding of other financial tools, stay away from these people. What they need is a financial advisor who can bring them to grips with reality and help them get their lifestyle in line with their assets. Sure they need long term care insurance and may well get it down the road, but its not in the picture at this time.

This is the most frustrating prospect to work with–they meet the ideal LTCI prospect profile, you know they need long term care insurance, they know they need long term care insurance, they have the money and still they dont buy. They are the people that agents believe are in denial. They arent. They just cant afford the coverage in their present financial state.

The third box is for those people who have a nice living and have been able to put away some money. They are not what we would consider rich but do have between $100,000 and $500,000 in investible assets. These are truly the best prospects you can come across–not only do they have the need, they are also in the enviable position to be able to choose from all three long term care insurance vehicles, which we will cover later.

An agents ability to be successful with this group increases in direct relationship with his or her understanding of and ability to offer different types of coverage. After all, despite what so many believe, this is not a one-size-fits-all market. These people have options, and those sales professionals that bring options to the table will be successful in this market box.

The fourth box is for those people that have been successful and accumulated a handsome sum. Their net worth isnt the key here but rather that they have at least $100,000 in some type of income-producing vehicle such as a certificate of deposit, annuity, IRA or savings account. They dont need to draw income off of this money nor will they likely need to in the future.

This prospect is the one that most often tells you they can afford to pay for long term care out of pocket if the need ever arises. The opportunity here lies in your ability to show them the difference between self-insuring (with and without leverage) and self-funding.

So, what about the group some people may think I forgot–those who cant afford long term care insurance? Simply put, they are not prospects. They do constitute the single largest group in the senior population, but they arent prospects for long term care insurance.

Those producers that practice general rather than target marketing also find that this group makes up the greater part of those attending their seminars. In order to be a professional, you need to know about the government programs available, but you have no obligation to make a long term care presentation. There is also no need to be rude by ignoring them. Just provide them with the phone numbers of your state Medicare and Medicaid offices.

As professional selling long term care coverage, you need to make a decision. Which of the two sales boxes should you be working in? (See Box Two.) Are you a person that sells a single long term care insurance product? Or can you offer a variety of solutions depending on the prospects needs and your ability to address this issue from different financial positions? There is nothing wrong with either of the above; success depends on your ability to identify the market(s) in which your talents, skills and abilities will best serve you.

There presently are three vehicles (see Box Three) being used by insurance companies to address long term care coverage. The first and by far most numerous and best known is the health model. I refer to them as health LTC because their structures follow along the lines of health insurance. They offer predetermined benefits and have set premium plans.

Annuities make up the second box and are relatively new to the market. The annuity itself is the vehicle on which the long term care benefits will be paid, at least initially.

The third is life insurance-based coverage. The additional leverage life insurance allows the client to increase coverage and insures they will get something back for their premiums if they dont need LTC services.

The prospect can, of course, choose to do nothing, which in effect is choosing to self-fund.

Let me emphasize the difference between self-funding and self-insuring. (See Box Four.) To self-fund means you are willing to pay for any and all costs of long term care out of your own pocket. Self-insuring, on the other hand, means you are willing to risk a predetermined amount while putting in place a reinsurance program that limits the risk to that predetermined amount. The prospect can choose partial coverage; that is, they put a program in place that pays limited benefits with respect to period of coverage and/or amount of coverage.

The fourth box is full coverage, although I have had people tell me this is available, I have never actually seen a long term care policy that pays any and all costs from dollar one for all services and keeps pace with inflation. What I have seen are strategies that combine multiple coverages set up to overlap and therefore eliminate gaps.

One of the more innovative policies to come out in the last few years is an impaired risk immediate annuity that pays a predetermined monthly benefit for the life of the long term care patient to which an inflation rider can be added. This provides you with the ability to put a payment program in place after a person already is using a long term care service. It is almost like buying fire insurance after your house catches fire. This after-the-fact coverage can be set up in different ways and can actually fit into any of the four boxes.

When it comes to long-term care sales, thinking outside the box may help you close an occasional sale by forcing a square peg into a round hole. On the other hand, thinking inside the boxes will allow you to find it is a whole lot easier to slide the right pegs into the right holes.

Presenting the right product to a qualified prospect can only help make your job easier, more enjoyable and much more profitable.

Jonathan J. Neal is president of the Society of Certified Long-Term Care Advisors. He can be reached via e-mail at jneal@cltca.com.


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.