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The Best Coverage Your Client’s Money Can Buy

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A producer sent in the following question:

I want to keep my clients’ long-term care insurance (LTCI) premiums as low as possible yet still provide appropriate coverage. What guidelines can you provide about the benefits to recommend?

When designing the most appropriate benefit package to present to a client, keep in mind that companies vary tremendously in their pricing and underwriting considerations. All other things being equal, the bottom line is which company offers clients the best deal.

For assistance in recommending affordable benefits, I asked Stephen Nussbaum, an independent agent in Loudonville, N.Y., what he suggests to his clients and why.

Elimination period/deductibles

  • Avoid very low deductibles or elimination periods (EP), since lower deductibles have a much higher premium cost. Also, Medicare and a Medicare supplement policy may help defray the cost up to 100 days at the start of a long-term care (LTC) episode. That coverage often counts toward satisfying the elimination period.
  • Recommend calendar-day EP over service-day EP.

Benefit length

  • Avoid unlimited and very long benefit lengths. The best option is a 5-year policy.
  • Concerning limited versus unlimited or lifetime coverage, based on buying at age 55, unlimited costs 40% more, on average, than 5 years of coverage.
  • Over 90% of chronic LTC episodes will be fully covered by a policy offering 5 years of benefits.
  • A 5year policy usually lasts longer than 5 years of use. The reason is that policies use the benefit pool or pot of money concept. The unused daily benefit is carried over for future use.
  • If your client is very concerned about a 20-year Alzheimer’s episode, you can recommend longer coverage terms, shared care riders, higher daily benefits, or a state’s LTC Partnership program.

Other ways to prolong the life of the policy and/or reduce costs

  • Shared care is often more cost effective than unlimited. But depending on the company, the additional cost can run from 10% to 22% for that rider. That is still less expensive than unlimited coverage.
  • Use a higher daily benefit amount to expand the useful life of the policy
  • Consider a state’s Partnership policy, especially in New York where unlimited asset protection is available.
  • Avoid almost all other riders (i.e., survivorship, non-forfeiture, return of premium, etc.). They are expensive add-ons that may do nothing to enhance coverage.
  • Encourage annual premium payment modes (especially at today’s interest rates).

The facts of a case will affect the analysis; I personally prefer a lifetime benefit length if there is a history of Alzheimer’s in the family, and particularly if the client is female. But it’s good to recognize that benefits that are perfect for some may be less important to others.