In the Meantime

If you’ve been keeping up with the long-term care insurance controversy, you’ve read The New York Times article that started the brouhaha earlier this year–about policyholders with long-term care policies who were denied, denied, denied by their insurers until they died or gave up trying to collect, or about other elderly or ill people who are fighting in court to have benefits paid while families pay for care expenses they can ill afford.

The Times article singled out just a couple of companies for these allegations–Conseco and Penn Treaty American–but you know how that goes. Suddenly there were articles and editorials across the nation, echoing stories of tribulation and denial and demanding reform of the entire industry. Presidential candidates Barack Obama and Hillary Clinton demanded investigations, and both Congress and the GAO are both looking into the situation, with promises of change and perhaps even government regulation to come. In these pages, we reviewed the problem of a financial advisor whose own grandmother’s claim was denied by yet another company; that case is still in dispute at this writing.

In the midst of all this agitation, there you are, with your clients’ well-being at stake. Whether or not reform comes–or is needed–you need to see that your clients are protected now from the potentially crippling costs of long-term care. What do you look for? How do you advise them, particularly in light of these headlines?

The Truth Is Somewhere in the Middle

John Ryan, of Ryan Insurance Strategy Consultants in Greenwood, Colorado, provides information to advisors on various types of insurance, and we spoke with him about what’s happening in the industry. “I’ve seen some rebuttals to The New York Times article from industry insiders,” he says, “and I think the truth is somewhere in the middle, as it usually is. There’s always going to be a percentage of people who just flat out don’t get treated fairly, and then some who think they aren’t, and some who are. And the ones who aren’t are the ones we read about.” That said, he mentioned several factors that advisors should pay close attention to when guiding clients in the matter of LTC insurance.

1. Top-of-the-line companies. No matter which industry expert we talked with on any LTC article, present or past, this always came out number one on the list, and it still is. “I’m putting a lot of faith in” companies that include Prudential, Genworth, John Hancock, MetLife, and Physicians Mutual, Ryan says. He also suggests companies like Berkshire, which is a wholly owned subsidiary of Guardian Life. Even though Berkshire is “kind of new to the scene,” he adds that some people feel there’s an advantage to being a newcomer “because the oldcomers have made all the mistakes.” And the top 10 companies, he says, “probably write 90% of the business.”

2. Revisiting the hybrid. “Five years ago,” Ryan relates, “I was quite sure a hybrid policy [universal life insurance combined with LTC insurance] was not a good deal, but I’m reevaluating.” It’s seldom, he says, that a client late in life needs both life insurance and LTC insurance. Ryan has previously advised against the purchase of these “wrap” policies, advocating the purchase of straight LTC insurance instead. Now, however, he wonders whether universal life with a LTC element might be less sensitive to rate increases going forward.

Insurance companies will have to pay regardless, he points out–either a life benefit, a long-term care benefit, or a payoff if the client cashes out. Because the client will collect anyway, Ryan wonders if actuaries will rate such policies differently. “If there’s a trend I think advisors should look out for,” he says, “that’s it–the hybrid universal life/LTC plan.” It’s very appealing and looks great on paper, he adds, but urges advisors to look closely even as he reconsiders the matter. If clients sit down and evaluate the different components, he feels, and take the time to do that with their advisor, they might find, as he currently believes, that they’re still better off buying a traditional policy.

3. Ten-pay policies. The jury is still out on policies that require ten annual payments to be completely paid up, although Ryan concedes that they may be getting closer to a good deal. “If I buy a lifetime pay policy, and I get the equivalent of 3-4% increases per year on average,” he says, “maybe the accelerated policy would make sense.” A 25% increase over 10 years, he says, works out in favor of a lifetime pay policy, whereas a premium increase totaling 40% over 10 years would work in favor of a 10-pay. He cautions advisors, once again, to be careful.

4. Return of premium. “A return of premium anything has never made sense,” Ryan declares. “Term life, disability income, long-term care–it just seems to favor the insurance company too much.” However, he acknowledges that some clients will be drawn to the purchase of a policy by the prospect of their beneficiaries getting all the money back if the policy is not used. “If that helps them buy insurance they need,” he concedes, “maybe it has a purpose.” Financially, looking at it from the time value of money, Ryan advises against it. Emotionally, however, it may be another story, he says, for this and for many of these borderline features, and if that tips a client over into buying needed coverage, advisors shouldn’t necessarily write them off.