Among all the challenges that producers must overcome to make the long term care insurance sale, finding the money to pay the premiums can rank as high as any.
Indeed, there’s no denying premiums can be steep. A couple in their mid-50s purchasing modest coverage ($200 per day, a five-year benefit period and a 90-day elimination period, with inflation protection) can expect to pay at least $3,000 annually. That could easily double or even triple, depending upon the underwriting carrier, other optional benefits and so on.
One method savvy professionals are using to find the funds to buy LTC insurance is to tap the cash value of the prospect’s life insurance policy.
Permanent life insurance with cash value could be a sizeable enough asset to convert to a life policy that includes LTC benefits, thereby insuring the LTC risk without creating a new expense for the customer. This strategy assumes the life insurance has not been earmarked for other needs, and the policy owner understands the trade-offs in the move. If the insured is counting on the cash value to supplement income in retirement, then this strategy should not be pursued. However, using the cash value to buy LTC insurance does not mean the insured must forfeit a death benefit.
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Many products on the market today combine life and LTC insurance. For insurance professionals, finding a product to fit the LTC need will probably be the easy part. There are other important considerations with this strategy, however.
First, one must consider underwriting. Moving the cash value asset to a combination life-LTC insurance product means a new risk for the underwriter. The new risk must meet the minimum underwriting standards of the carrier issuing the combination product. In evaluating the risk, the underwriter is likely to review medical records, conduct a cognitive-ability screening test and perhaps order a face-to-face interview. The insured will not have to give up the cash value life policy until the underwriting outcome is known, so there is no risk in applying.
How much is enough?