David Woods On Commissions
To The Editor:
I would not normally argue with my longtime friend, mentor and predecessor, Jack Bobo, particularly since I seldom win when I do. But I think he is wrong when he compares the commission of 2%-3% on a single premium sale to that of a real estate commission of 6%-7%. Hes on the right track, but hes comparing apples and oranges.
The 6%-7% real estate commission is multiplied by the sale price of the real estate being sold. The 2%-3% single premium life insurance commission is multiplied by the premium paid. To make a fair comparison the dollar amount of insurance commission must be divided by the face amount of the policy to determine the true percentage rate. The value of a single premium policy (or a recurring premium policy for that matter) is the value to the beneficiaries. Thats what the buyer buys, not the amount of premium paid. Just as a home buyer buys shelter worth so many dollars, the insurance buyer buys financial security worth so many dollars to his or her beneficiaries.
To make it clear, lets suppose a $500,000 single premium policy costs $250,000. At 2% the commission is $5,000. But as a percentage of the value to the beneficiaries$500,000the commission rate is only 1%. On the other hand, the commission on a $500,000 home at 6% is $30,000. That is a true apples and apples comparison.
Jack was making the right point, he just didnt make it as well as he could have.
On one point Jack and I agree completelyand this was his main point. Commission disclosure can be very misleading and is certainly an incomplete representation of the cost of a policy. In fact, an actuary I once knew said the true cost of a life insurance policy cannot be known until the last beneficiary dies. Life insurance is so simple and yet so misunderstood and too often misrepresented.
Thats tragic for too many families and businesses in this country today.
David F. Woods, CLU, ChFC, LUTCF
CEO, National Association of Insurance and Financial Advisors
President, Life & Health Insurance Foundation for Education
Karen Ignagni On LTCI
To The Editor:
I write in response to your March 21, 2005 article, “Commissioners: Should LTCI Sales Continue?”
While our industry recognizes that there will continue to be challenges that need to be addressed within any system as complex as the benefits insurance marketplace, we would submit to you that the long term care insurance companies are today marketing products to consumers that are designed for maximum flexibility and affordability.
In fact, a recent report by the Department of Health and Human Services on policies and facilities in New Hampshire and Alabama found that a vast majority of claimants (95% of nursing home claimants and 89% of assisted living claimants) were satisfied with their LTCI policies. Additionally, 85% of claimants in both states had no difficulty in understanding what their policy covered, and a significant majority (85% in NH and 74% in AL) found the claims process easy to navigate.
LTCI has evolved over the years to meet the changing needs of policyholders and caregivers across the country. We know from surveys that LTCI can make purchasers feel more secure because they feel they have taken appropriate steps to plan for their future and the future comfort of their loved ones. These same surveys show that LTCI saves disabled policyholders significant out-of-pocket costs, and that having such a policy can reduce by 66% the chances that a person would have to spend down assets for nursing home care to the point of impoverishment in order to qualify for Medicaid.
As Congress debates the most appropriate use of limited dollars in our nations public programs, we can see a direct effect of LTCI. Current policies help reduce state and federal Medicaid expenditures and federal Medicare home health expenditures. Medicaid savings are projected to total about $5,000 per policyholder and Medicare savings are estimated to exceed $1,600. Aggregate savings to Medicare and Medicaid for the current number of policyholders (about 10 million) are estimated at about $30 billion, a number which is bound to grow as more individuals purchase policies at a younger average age and more employers offer policies moving forward.
The Federal Employees Health Benefits Program also has recognized the importance of LTCI and offers access to such policies today. Since the launch of the program, it has attracted 250,000 policyholders who recognize the importance of planning for their futures.
Moving forward, our industry welcomes dialogue and debate on how best to streamline and improve the LTCI marketplace, but we would encourage lawmakers first to do no harm as we work together to provide the best for Americas future.
President and CEO
Americas Health Insurance Plans
Reproduced from National Underwriter Edition, April 1, 2005. Copyright 2005 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.