In this dynamic year for long-term care insurance products, a lot of agents have added the relatively new hybrid products to their sales portfolio. These products, which either combine LTCI with annuities or life insurance, were designed to provide buyers with substantive benefits for their premium dollar, even if they never need long-term care.
This flexible concept sounds terrific, but as we all know, reality often interferes with the best laid plans. To help determine how well these products are working for producers and their clients, we’re focusing this month’s roundtable on the practical realities of these conceptually innovative products.
In Part I of this roundtable, three producers share how they look for LTCI hybrid prospects and what they’re saying to those prospects when they find them.
For Part II of this producer roundtable, see: Common objection to LTCI hybrids — and how to overcome them
Q. Have you found there to be a certain kind of prospect who reacts more positively than others to hybrid products? Can you talk about the characteristics of that kind of prospect?
Matthew D. Brotherton, CLTC, president of 1752 Financial in Roanoke, Va.: The prospects who have been more interested in the hybrid product have been widows, widowers and single individuals. They see the value in having a long-term care policy to have access to good quality care. These prospects also want to leave a larger legacy if they do not use the death benefit for long-term care. Another great prospect for the hybrid product is someone who has an existing permanent life insurance product with some cash value. Sometimes these prospects are considering cashing in the policy or haven’t reviewed the policy in many years. I am usually able to show them a solution by exchanging the current policy to a new one with the long-term care rider, assuming they are able to be approved health-wise. Another prospect is someone who has a maturing certificate of deposit, is tired of the bank CD rates, realizes he or she needs long-term care protection, and has other assets to use for income.
The prospect typically has a higher than average annual income and net worth, wants to leave a legacy for family members, and normally falls between the ages of 40 and 70.
John J. Demboski, CFP, of Demboski & Chapman Financial and Insurance Solutions Inc. in Akron, Ohio: I have not found a particular kind of prospect who tends to gravitate toward these kinds of products. However, the issues solved with hybrid products tend to follow a common fact pattern in clients who need long-term care, who are also often in need of life or annuity solutions. Given the complexity of these products, and that prospective clients frequently only perceive “one problem” existing, they can be a challenging product to discuss with new clients.
Steven A. Plewes, CLU, ChFC, principal of Advisors Financial Group in Gaithersburg, Md.: In my experience, people who react positively to hybrid products have a need and desire to buy long-term care insurance, but they fear they may never use it and, therefore, the money they spent on premiums over the years would be wasted. Those people like the idea of using their dollars to provide multiple benefits, such as a combination of life and long-term care insurance, or annuities with long-term care features. These prospects may have longevity in their family, have experience where their parents had long-term care insurance but never used it because they died prematurely, or feel they will be successful enough financially where they don’t need long-term care. They like the aspect that they can accumulate cash values or provide additional death benefits for their families in lieu of long-term care benefits, should they not use them.
Q. Since these products are so unique, do you have trouble explaining to prospects how they work? What’s been your most effective approach for helping prospects understand what these products can accomplish?
Demboski: I believe the complexity of these products necessitates positioning them as part of an overall financial plan. It’s important to show the client a compare/contrast versus purchasing two products to solve both problems. You, as the advisor, have to be sure a hybrid product is the best solution.
See also: LTC 101
Plewes: Because of the products’ complexities, I usually start with their basic underlying features. For instance, for life insurance, I talk about the benefits of what the life insurance contract offers: cash values, death benefits and such. Additionally, the same would be true for variable annuities with long-term care features. I focus primarily on the basics of the annuity product, any income riders the prospect may be interested in, and after establishing those foundations, I talk about the additional benefits provided for long-term care. I find that this helps the client to not become overwhelmed with so many moving parts in these products.
Brotherton: I explain that the product offers convenience — they have one underwriting process for both products; flexibility — all, some or none of the death benefit can be used for long-term care; and value — by having a hybrid, it’s less expensive than purchasing a separate permanent life insurance policy and a long-term care policy.
For the rest of this roundtable, see: Common objection to LTCI hybrids — and how to overcome them