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10-Pay Has Wide Appeal To Boomers

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Many boomers realize that long term care is a big gap in their retirement planning. One of their biggest concerns is: How do you pay premiums after you retire?

Thats why 10-pay plans appeal to many clients in the boomer generation, producers say. These policies let them provide for future LTCI needs while they are still in their peak earning years.

Not everyone will be able to afford the 10-pay plan option, however. Because it can be tough to find the money to pay annual premiums of $2,000, $3,000 or more, many agents see 10-pay as a product most suitable for the business marketplace.

The private marketplace does not offer that many customers for 10-pay policies, says Walter J. Robinson, director-LTC sales at Cipco Booth Financial Associates Inc., Norwalk, Conn.

Still, he notes, many boomers have reached the point where they can afford it, if the agent is mindful 10-pay is appropriate only for the consumer who has a strong income stream.

For the most part, however, its the business market that offers the most promise.

“10-pay has seen a sales increase primarily with high-income, self-employed professionals,” agrees Kevin J. Johnson, president, New York Long Term Care Brokers Ltd., Clifton Park, N.Y.

The best prospects, Johnson finds, are business owners looking to maximize deductions, particularly C corporation owners.

Unlike sole proprietorships or other forms of business where business income is reported on the individuals personal income tax statement, C corporations allow the owner to take the money spent on LTC insurance out of the companys retained earnings.

Another big advantage: Policy owners lock in premiums for at least a good part of the 10-year period, Johnson points out.

“For people who have ample disposable income, it makes all the sense in the world,” he says. “And today, many of the newer plans offer return of premium upon death, so theres a triple benefit there.”

For many boomers under age 55, he notes, the “to 65″ plans now offered by some carriers can be a good alternative to 10-pay. These policies, which are paid up by the time the client hits age 65, offer slightly cheaper premiums.

Johnson estimates that 10-pay policies will account for about 5% of his LTCI sales this year and could grow to 10% or 15% next year.

Claude Thau, president of Thau Inc., Overland Park, Kan., also has seen significant growth in 10-pay, primarily in the executive carveout market.

“In any entity that has its own separate tax return, the entire cost of the LTC premium is tax deductible,” he points out. “So, 10-pay is highly attractive. A 10-pay program protects your entire retirement cash flow and also benefits you because you know that after 10 years, you wont have to pay premium increases. Even if the premium were raised after 7 payments, youd still have only 3 more years to pay it up.”

10-pay can be especially attractive to boomers because often these are people who do not qualify for medical expense deductions due to their high income and the 7.5% of income exemption for medical expenses, Thau observes.

“These are the people who need to buy LTC insurance through their business or convince their employers to buy it for them,” he adds.

Typical policies Thau sells include a 5% annual inflation figure, lifetime benefits, full home health care coverage and an elimination period that varies according to the individuals preferences.

Indemnity plans also are growing in popularity, because they allow beneficiaries to pay family care givers directly, Thau says.

Johnson says the key to sales growth in 10-pay is to make a point of talking to boomer clients who have the income to support it. “Bring it to peoples attention as an alternative to paying long term care premiums for the rest of their lives,” he advises.

Reproduced from National Underwriter Edition, November 18, 2004. Copyright 2004 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.