Long term care insurance producers are finding a strong and growing market in executive long term care plans for small and medium-sized businesses.
Smaller firms are responding well to the message that LTC as an executive benefit protects key people’s personal financial assets, provides permanent and portable coverage, and offers significant tax benefits to both the company and the executive.
The market for LTC executive carveouts has grown to the point where many employee benefits producers bring it up on almost every call, says Mike Eagan, managing director, Worth Partners, Sudbury, Mass. If they don’t, they may miss out on an opportunity, he adds.
Eagan strongly urges agents and brokers to keep returning to the LTC topic during follow-up sales calls with business clients.
“I had a situation where a company to which I presented the idea a couple of years ago was not interested,” Eagan recalls. “Then, two years later, I found they had decided to do it but went with someone else.”
Making the LTC executive carveout sale is “more like farming than anything,” he notes. “You plant the seed, water it and harvest it. It’s not a quick sale, but if you don’t tend to it, it’s going to go someplace else.”
Eagan has another tip for LTC agents: Get the executives’ spouses involved.
Especially if you’re dealing with mostly male executives, the spouse can be a key ally, he adds. Women usually are more finely attuned to the problem of long term care than men, because they are more likely to have been involved with the care of elderly relatives, he notes.
But there’s another practical reason to reach out to spouses. “If you set it up with a small, closely held company and you can include the spouses, you get eight people where you might have had four,” Eagan points out.
He sees his prime market as the C corporation. “That’s where the tax savings are most attractive, and that helps the sale along.”
In Eagan’s experience, the successful sale is typically a company with one or two decision-makers who think LTC as an executive benefit is a good idea.
The age of the executives also has a strong bearing on making the sale.
“Often, this happens after they reach age 50 and are looking to the end zone,” he observes. “The fact they can use the corporate checkbook as opposed to their personal checkbook helps things along, too.”
Eagan finds that, generally, high-tech companies are not a strong candidate for LTC. One reason: They tend to have a relatively younger senior staff.
For another, they are apt to be financed by a number of outside investors, who often look unkindly upon rich benefit plans.
“They’re just trying to grow and eventually go public or whatever. If they’re in it for five years and out, they’re not so concerned about benefits,” Eagan says.
Much better candidates for a successful sale are established businesses run by executives in their 40s and 50s. Often, they are starting to understand LTC is a risk, and they can get tax advantages from buying insurance to cover it, says Gail Steingold, founder and principal of Burling Insurance Group–Long Term Care, Chicago, an independent broker.
The tax advantages then often close the sale, she says.
“That always brightens up a business owner, when you tell him how you can pay for this,” Steingold says.
Her clientele consists primarily of companies of one to 100 employees.
“Law firms often target long term care for partners, both equity and nonequity, and we see interest from people in their 40s, 50s and 60s. They are embracing a benefit where they could get some tax advantage out of this as a partner,” Steingold says.
Climbing health care costs actually can help the LTC insurance producer in the small company niche, she points out.
“Health care costs consume 10% to 23% of benefit costs typically, and they are going up 20% a year. When they’re paying $6,000 a year for health care per person and they see a long term care plan that would cost them, say, $12,000 for the whole executive corps, it looks like the bargain of the century,” Steingold observes.
Cost-wise, LTC insurance also stacks up well against defined contribution retirement benefits where the employer offers a 5% match, Steingold points out.
Another way to spice up the appeal of an LTC insurance plan is to show how it can be used as a golden handcuff for key executives, she notes. That is done by offering it as a 10-pay.
“If the company decides to pay up a policy over 10 years, then it does become a golden handcuff,” Steingold says. “It sweetens the incentive to stay.”
She estimates one third to a half of her employer LTC clients take LTC as a 10-pay plan.
Another piece of advice she offers to LTC producers seeking to sell executive carveouts is to be aware that this type of sale can take one to three years to complete.
“When you are dealing with a company with a complex benefit structure, other issues often take precedence,” Steingold observes.
On the other hand, the sale can require the producer to act fast. She recalls an engineering firm with 70 employees and three principals that contacted her.
“One of them had her mom in a nursing home where, as it happened, I used to work,” Steingold says. “When I paid a call to her firm, we recognized each other. Another partner also had a relative in their 80s needing long term care, so they knew how important this insurance is. That sale happened within a month.”
In contract was a law firm with a host of competing issues, and that took over two years, she said. Another firm told her it won’t even consider a carveout plan until 2007, at the earliest.
In Steingold’s experience, typical executive plans offer a daily benefit of $150 to $250, a 90- or 100-day elimination period and a maximum benefit of three to five years, along with a simple or compound inflation rider.
Return of premium also can offer a strong appeal to executives in their 40s, she says.
“Younger executives love return of premium in case they never use long term care and need to shift funds to their kids,” she says.
Regardless of the company profile, Steingold positions LTC in the client’s mind as a retirement benefit rather than as a health benefit. In today’s climate of declining pension plans, that approach rings true for the business owner.
“I tell them it should be part and parcel of a defined contribution plan: ‘The company gave you a 401(k), and now you have to protect it. What if you need long term care?’ That’s how I approach groups, and I think that’s what’s going to speak to executives.”