I read with interest “The Long View,” the article in your April issue relating to long term care insurance.
As an LTCI specialist and producer I have to take exception to an opinion expressed by both Debra Newman and Jesse Slome on re-creating building blocks — buying a chunk now to lock in your insurability and adding to the policies later.
The option to buy affordable coverage at a younger age, locking in your insurability and then adding to it later, is usually called Future/Guaranteed Purchase Option and is an attractive selling point. What no one can tell you is how much the purchasable increases will cost in the future as they are based on your new, attained age and on the rates in effect at the time of the future purchase. What this means to someone aged 45-50 is they may not be able to afford to purchase more coverage at age 65 and therefore might stop buying the increases, freezing their policy benefits. With perhaps 20 or more years left before they need care, they may not be able to afford the coinsurance at that time since the cost for care may more than double over that period. This would render their policy benefits almost meaningless.
I’m appointed by the top carriers — most of whom offer the F/GPO — but I wouldn’t propose that option to anyone under the age of 75.
A sound approach is to sell meaningful coverage, not premium. It is better to sell a smaller policy with a fixed premium that will quadruple in benefits (as it will with the five percent compound inflation option) over 30 years.
The industry understandably promotes the idea that some coverage is better than none. This is not necessarily true if the policyholder can’t afford to pay the difference between the cost for their care and what the policy delivers.
This is not a criticism of the policies that, by and large, deliver what is promised. It is, however, a caution to policy sales made by people who aren’t aware of or won’t explain the long-term consequences of buying a policy with the F/GPO.
Either I am out of step with everyone or there are many policyholders out there who don’t understand the future benefits/costs of their LTC policies and who could be in dire straits when it comes time to collect.