# Reader Feedback: 'Budget' LTCI Policies More Harm Than Good?

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A while back, we received a letter from a reader about an increasingly prevalent piece of long term care insurance advice: that not all clients need a Cadillac plan, and some may be able to make do with less full-featured – and less expensive – policies.

Recently, this reader touched base with us to remind us of his concerns, and for what he sees as a “new marketing” effort that may end up doing the market more harm than good.

Here’s what he had to say in his original letter:

“I really enjoyed the October issue of Agent’s Sales Journal. Thank you and your staff for providing a forum to share information about insurance issues.

Tom Riekse’s article about designing a long-term care insurance policy ‘for every client’s budget’ was interesting.

“He recommends selling a policy that will pay \$4,000 a month, if the actual expense is anticipated to be \$6,000 a month, or about 65 percent of actual need, in order to make the sales interview successful and the product more appealing.

“What will the policyholder do if he only has \$4,000-a-month policy benefit to pay for their long term care expenses and their real cost is\$6,000 a month, or \$72,000 a year? That is a difference of \$24,000. Let’s assume each month has 30 days. 30 days divided into \$6,000 equals \$200 a day to spend on long term care expenses.

“If the policyholder only has \$4,000 for 30 days = \$133.00 a day, what should they do? If they are receiving home care and are lucky enough to find someone to work for \$200.00 a day (divided by 24 hours in day = \$8.33 an hour), should they receive fewer hours of care? \$200 minus \$133 = \$67divided by 8.33 = eight fewer hours worth of care each day? If this would be possible, which hours would you eliminate? Daytime, or nighttime? The only other option would be to pay the caregiver \$5.50 an hour for 24 hours of care a day. Of course, each case would depend on different circumstances.

“In Mr. Riekse’s example, if the policyholder is in an assisted living facility or nursing home, I suppose that they could try and find another home to feed them three meals a day, change diapers, and bathe them, etc., for 10 days each month. If they have been paying \$6,000 a month divided by 30 = \$200 a day and only have \$4,000.00 a month, then they will have to leave the facility for 10 days a month. Maybe the children or grandchildren can take care of them or their church. This may sound extreme, but so does suggesting anyone ‘under-buy’ or ‘budget-buy’ a long term care insurance policy. This type of reasoning defeats the basic purpose of LTCI. Mr. Riekse suggests selling a policy that, by design, may not work at the actual beginning of a claim.

“Today, people understand that they may shift their asset base and receive the same benefits for free. Medicaid planning is becoming more popular because expansion of waivers for home care and assisted living facilities is increasing.

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“Our industry needs full disclosure and complete honesty in each phase of the sales cycle when selling long term care insurance. If someone can’t afford a policy, agents should not try to apply pressure by bullying sales tactics or misleading them by spinning the future needs of their expenses.

“Number three of Mr. Riekse’s suggestions is to purchase a three-year benefit instead of a five-year or lifetime benefit period, and I do not challenge his advice on this point. However, speaking from experience, I will share with you the fact that I have several claims that are still in process that have lasted over 10 years so far.

“Many marketing executives try to convince agents that people do not need lifetime benefits. Do you ever question why the insurance actuaries price the lifetime benefits so much higher if the actuarial claims experience does not justify these high premiums? Company sales and marketing personnel are constantly demanding lower premiums and better benefits in order for them to achieve high sales figures, but the actuaries continually price lifetime benefits as a high risk. Do you wonder why they do, if claims are for only three years?

“If an LTCI claim is not paid or the rates go up in the future and policyholder has to drop all of their coverage or reduce their benefits to a skeleton or ‘bare-bones’ policy, the policyholder will never forgive the agent or company. Everyone in their church or clubs and people in the grocery store checkout line and the funeral director will hear about what a terrible company and agent they got involved with.

“Recently, we experienced floods in the Southeast. Many people expected their homeowners’ insurance to pay for the flood damage. Their policy would not pay anything unless the policy had a specific rider for floods. Most of the policyholders did not have this rider, and their claims were never even considered. The media had a field day with the insurance companies and agents. They portrayed them as crooks and charged that they cheated and misled policyholders.

“Most professional LTCI agents try to determine the financial situation of a prospect before the actual sales interview and decide if the prospect can afford his product. If, during the interview, an agent learns that this prospect simply doesn’t have the financial resources to pay for a quality product, he should have the courage and processional integrity to tell this prospect the truth. He may explain that there are other options available, but that this type of policy may not be appropriate at this time – and then leave.

“The LTCI profession has received much bad publicity in the last few years, and most of this negative news is not the agent’s fault. But, I believe that to deliberately undersell a policy to anyone with limited financial resources is malpractice. If a prospect is wealthy, this sales tactic may work, but to use this ‘budget’ sales ploy just to get a sale is cheap and demeaning to agents.

“Professional agents do not need to set themselves self up for limited claims payments [negative publicity] in the future. We have a valuable product and a great service to provide to the public and we don’t need to water down benefits just to sell a policy. I am proud to have worked in the insurance business for 40 years and I am proud of the products that have been provided to me by many insurance companies to present to clients. We need to continue serving the public with honest solutions to real risk.”

What’s your take, readers? Do you find any value in selling a more cost conscious policy, or do you find this demeans and waters down the industry as a whole? Or do you think it’s a viable solution to a valid client concern? Let us know your experience and insight on this issue.

Christina Pellett is the editor of the Agent’s Sales Journal.

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