Q. I need some guidance about the inflation protection benefit. Adding this to the policy really increases the premium. Is it really necessary? And if it is, could you provide some guidelines about when to recommend the various kinds of inflation protection?
A. The inflation adjustment is one of the key decisions when purchasing LTCI. A consumer has four choices: compound, simple, future purchase option and no increase at all. I am a fervent advocate of the need for the inflation protection benefit, and preferably compound, particularly for women since they live longer than men. To illustrate how important I think this benefit is, let me share a true story.
I had gone to a prospect’s house (a couple ages 64 and 69) to discuss LTCI, gave my client presentation and then discussed the policy I recommended and the premium. The wife’s response was that they agreed with the product I recommended, but were not happy with the cost, because the agent who had visited them last week, who was also her husband’s bridge partner, had showed them the same policy but it was considerably less money.
I asked to see the materials the agent had left behind and realized that he had not included inflation protection in the premium.
I explained the premiums were set by the carrier and approved by the state, so there was no discount factor here. I concluded by saying that selling them a policy without inflation protection was like them buying a car without brakes, and I would not do it. When I left their house, I’m sure they called the other agent before I got to the end of the driveway.
Three days later, they called, asking me to come back. I went, took the application and got the check. As I was preparing to leave, I asked them why they had called me back. The wife’s response: “When we spoke to the other agent, his answer was that he was trying to save us money.” I got the sale and a lot of referrals from them because I was committed to doing what was right for the client.
There are several different guidelines concerning inflation protection. Here are my own:
Ages 69 and younger: Recommend compound.
Ages 70 to 75: Discuss compound and simple.
Over age 75: Increase daily benefit and recommend future purchase option.
And here are some guidelines from Teresa Eagen, an Indiana agent, and Arthur Stein, a Maryland agent: Both always recommend compound inflation benefit at all ages.
Eagen believes it because, “we have no idea at what age an insured will need care. I also think that the way we reduce premium is by reducing the benefit period — which fits very nicely with partnership asset protection.”
Eagen also distributes a compelling “Power of Inflation Protection” chart during her CE classes, which represent the rising cost of care services if care increases at a 5 percent rate annually, and the rising value of LTCI benefits with an automatic 5 percent compounded annual increase.
Next month I’ll share Arthur Stein’s guidelines and what the new partnership policies will require.
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