While there has been quite a bit of change in the Long-Term Care market over the last few years, it has largely been centered around increasing prices, carriers pulling out of the market and the launch of a host of new asset-based solutions. The reality is that there has not been much change in the fundamental elements of the segment from a product solution perspective. However, when we turn our attention to the level of understanding around how claims actually play out and more creative ways to fund an insurance solution, there have been some significant changes.
An Updated Approach to LTC Funding
One of the elements that is understood much more completely today than a few years ago is when these claims actually occur. What may have previously been thought of as a retiree problem has now been clarified as a problem facing retirees at age 70 and above. Based on actual data around the age that most claims are initiated, we can now design coverage to maximize benefits at the time it is likely to be needed most. Ironically, this also provides a way for clients to save thousands of dollars on their coverage.
Defining the Target Age
As mentioned above, the need for LTC coverage does not really begin to assert itself until well into retirement. According to the American Association for LTCI, over 89% of all claims are on clients over age 70, with 63% involving clients older than age 80. What this tells us is that risk management strategies need to focus on this period of a client’s life. Seems obvious, but the designs we see are almost all based on today’s economics rather than optimizing coverage at these older ages. As an example, consider a 51 year old male who qualifies for the spousal discount:
The bottom line? An “Optimized Design” can deliver either 42% savings versus a level pay design or 73% greater benefits right when they are needed most: over age 70. Everybody wins. These Optimized Designs drive home the point of the entire strategy: COLA adjustments are the most efficient way to buy future benefits. All we are doing is using that one fact to deliver either phenomenal premium savings or increased future benefits.
Give the Client the Right Choices
In our quest to identify the “one best solution” to a case, we often forget that this presents the client with a decision between buy or don’t buy. In reality, the recommendation is to use an insurance product as a risk management tool. The decision we want the client to make is between solutions. We need to assume that they are going to follow the recommendation if the need has been sold. That means presenting three ways to pay in this scenario (Follow the links to view the illustration):
- Option A: Level Pay
- Option B: Optimized Design for Premium Savings
- Option C: Optimized Design for Benefit Maximization
The likely result of presenting in this manner is twofold. First, the client has coverage that is designed to provide maximum benefits at the time they are most likely to be needed. Second, and perhaps more important to all of us as well as our Advisors, more clients saying “I’ll take option A/B/C” and signing the application. If they choose Option B, not only do they save as much as 42% on their premium, their benefits at age 80, when more than 63% of claims occur, are 63% higher ($14,460/month vs. $9000/month)!
One Last Comment
These optimized illustrations can only be run in Lincoln DesignIt. WinFlex does not have the solve built in to it. If you need training in running an illustration or downloading the software, please contact us.