There is a pervasive attitude shared by many agents about the long-term care insurance policies that they are trying to sell or have sold. That is, that the purchase of a policy is a once in a lifetime event. This view takes two forms; (1) if the client can?t solve their entire long-term care problem today they won?t deal with at least a portion of it now (something is better than nothing); and/or (2) once a policy is sold that it isn?t necessary, from time to time, to go back and review the benefit choices made in light of changing times. In the past I?ve written and spoken about the fact that selling something to a consumer, even if it doesn?t fulfill their entire long-term care need, is the right thing to do. Today, I?d like to introduce the notion of reviewing policies that clients have purchased in the past to make sure that their coverage is still adequate and appropriate for their needs tomorrow.
Most of you have been selling long-term care insurance in the modern age. In California this began in 1993 and nationally after the passage of HIPAA in 1996. Regardless of the consumer friendly regulations implemented with these changes there are many reasons for review. Here are some considerations to think about:
- Maybe you didn?t sell enough daily benefit to begin with, or;
- Maybe the benefit purchased at the time seemed adequate but inflation has exceeded expectations and now the benefit that you sold, even with a 5% compound inflation protection rider, isn?t enough.
- For instance, the actual rate of inflation in the long-term care sector is actually closer to 6% compounded as opposed to the 5% we sell. If someone purchased a $100 per day benefit fifteen years ago with 5% compounded inflation protection their daily benefit would now be worth $198. However, at a 6% inflation rate they would need $226 per day. This is an $840 per month difference. Depending on when the client bought and subsequently goes on claim this shortfall could grow even greater and may be quite significant.
- Some agents and consumers didn?t see the value of inflation protection back in the 90?s. It may not be too late to supplement an existing policy with more benefit with some sort of inflation protection now.
- Some of the policies that we sold in the mid-90?s had 80/20 coinsurance on the home care benefit. With a higher than 5% compound inflation rate in long-term care costs this coinsurance may present a burden that will surprised some clients at time of claim. No one likes this sort of surprise!
- Did you fail to take inflation into account when you sold the client an extended elimination period or didn?t realize that days counted towards the elimination period were ?visit? days as opposed to calendar days? When inflation and time is taken into account these discrepancies could unexpectedly and unhappily cost your clients tens of thousands of dollars. Like I said, no one likes surprises.
- In the future, there may be some long-term care services your client wants that will not be completely covered by the policy forms they purchased ten or fifteen years ago. For instance, assisted living benefits were not as robust as they are today or your client may choose to avail themselves of certain care options that didn?t or don?t currently exist and may not be covered by the policy that they own.
I?m not suggesting that the policies you put in-force a decade ago will not fulfill the promises made. On the contrary; most policies sold in the ?modern age? have and will stand the test of time. Also we know from the May 2007 Department of Health Services study (cited in my August 22nd post) that consumers are very happy with their long-term care insurance policies. But times and needs change and you would be remiss in not making the effort to review these older policies with an eye towards filling any gaps that may exist.
If you do this, my suggestion would be to utilize one of our cash benefit policies (MedAmerica, MetLife and Prudential). Since the gaps being filled are most likely small, cash benefits will be affordable and provide the maximum flexibility for the client. Depending on the gap you may be able to sell the add-on with a 5% simple or 5% compound two times max benefit, which are very reasonably priced, and will be sufficient to provide the client with the additional coverage they need at time of claim. Once qualified, cash benefits provide the policyholder with unlimited choices as to the sorts of services that they want or need. And since individual LTCi policies do not contain coordination of benefit language cash benefits would be paid in addition to any reimbursement or per diem benefit that the insured is eligible for under their current contract.
There is every reason why long-term care insurance policy reviews should be conducted periodically. I am sure that you do this with most forms of insurance that you currently offer in an effort to assure your clients that you are on top of their needs. Today, there are many 10-pay policies making it into the ?end zone?; most of these early policies did have the 80/20 coinsurance feature for home care benefits. There is no better time to get in touch with your clients to congratulate them on their arrival and to assess their current needs and situation to make sure that they are covered for the risks that you identify and that they see down the line.