Even as industry players wait expectantly for the Pension Protection Act to kick-in at year-end 2009, many are already enjoying a brisk and growing business selling so-called “combination,” “linked-benefit” or “asset-based” solutions the legislation is intended to benefit: life insurance that also features a long-term care rider. And high net worth boomers looking to protect their estate assets are fueling much of the demand.
“What we see repeatedly is a protection gap among affluent clients,” says Gary Fanning, a second vice president and national sales manager for MoneyGuard Intermediary Sales at Lincoln Financial Group, Hartford, Conn. “They have great retirement and estate plans, but that protection gap can wreak havoc with all of the prior planning because they haven’t insured for long-term care.”
Adds Peter Cross, president of Delta Financial Associates, an Eaton, Conn.-based wholesalers: “The first step in estate planning is planning to preserve the estate. When the client says ‘no,’ to a traditional LTC product, then the natural next-step is to propose linked-benefit insurance.”
Many clients are taking up the offer. Bill Upson, a chartered financial consultant and principal of Strategic Asset Management Group, Walnut Creek, Calif., reports “dramatic growth” in recent years for sales of his combo products, which constitute 75%-plus of his long-term care sales. Cross adds that combo products now garner 80% his distribution business, or more than $50 million in sales.
Why the growing interest among clients? Sources credit the rise in large measure to the solution’s attractiveness relative to stand-alone LTC products, which have historically been a difficult sell for advisors. That’s because policyholders of traditional LTC offerings stand to “lose” premiums paid into the contract in the event they never require long-term care or die before they use up the benefit.
Premiums paid into permanent life insurance contracts carrying a long-term care rider, by contrast, add to the policy’s cash value. The moneys deposited may thus be reserved for long-term care, retirement or estate planning or other liquidity needs.
Assuming for example, that a policyholder dies after depleting $174,495 from a $100,000 single-premium UL contract that carries a $348,990 long-term care benefit, the remaining half of the death benefit ($174,495) will be paid to a named beneficiary. If the policy also carries a return of premium rider, then upon surrender the policy will pay at least the initial paid premium, less any indebtedness, withdrawals or benefits paid.
Observers say that a combo product also lends itself well to trust planning. An independent trustee can draw against a linked-benefit policy held inside an irrevocable life insurance trust to reimburse a beneficiary (such as an adult child) who is paying LTC expenses on behalf of the trust grantor (such as an aging parent). When the grantor dies, the beneficiary can receive the remaining portion of the death benefit income and estate tax-free. But to pass muster with the IRS, the transactions have to be executed separately.