As employer sponsored long-term care insurance is embraced by the public, agents often ask which are better, true group or multi-life products. A quick review of the facts will reveal to you that multi-life trumps the competition for consumers and brokers.
One of the chief long-term care insurance consumer protections against capricious pricing practices and future rate increases is rate stabilization. Group products can skirt this regimen in two ways; (1) by its nature true group long-term care insurance is presumed to have higher lapse rates than individual product. Lapse supported pricing allows actuaries to price true group products lower than equivalent individual products even though it is this sort of practice that created the whole need for government intervention with rate stabilization. (2) Group products are only filed in one state not in all states as with individual products. This means that a group carrier can seek the state with the most lenient rate stabilization rules, get it approved and then market it anywhere. Therefore the true group products that are offered in California, for instance, have probably not passed muster with our extremely stringent rate stabilization treatment.
This leads to the question of portability. Yes, most true group long-term care insurance products allow the employee to take their coverage with them if they leave their employer or retire. However, the questions then arise: Who is the contract holder’ What happens to this policy if the employer drops the group coverage’ Where does this policy ‘reside’ and how will future rate increases be handled. The agent or policyholder does not have to face any of these issues when they have purchased an individual product through an employer sponsored multi-life plan. The employee has a durable contract with the insurance company that will serve them well into the future.
Next, true group long-term care insurance creates a contractual relationship between the employer and the insurance carrier. This can be problematic in two ways. (1) As the contract holder the employer is more likely to be subject to ERISA, and (2) at time of claim the insured (employee) doesn’t have the same legal recourse as they would have with an individual product. Both of these issues are alleviated by using individual products in an employer sponsored multi-life arrangement.
Additionally, the consumer protections imposed by HIPAA on individual products do not exist in the world of true group long-term care insurance. This is particularly an issue as it pertains to the mandatory offer of inflation protection and non-forfeiture benefits required with individual products. Since the employer makes these choices in a true group setting the employee does not necessarily get the option to add important benefit choices which he/she would have with an employer sponsored multi-life program.
True group policies have very limited benefit design choices for individual employees. This means that while the employer may be offering a valuable underlying benefit, the employee may not be able to add coverage choices that fit his or her family’s needs. And once a true group product is in place it isn’t always easy to increase benefits to suit changing times or the employees’ circumstances. Both of these shortcomings can be avoided with an employer sponsored multi-life LTCi program because employees can choose from a wide variety of add-on benefits at the initial enrollment and also purchase more coverage on a periodic basis as their needs change.
When you take into account all of the inherent disadvantages of true group long-term care insurance products you may wonder why the premium differential between them and individual products on a multi-life basis is not much greater. The fact is if there is a small price differential it is well worth the advantages for the employer and employee to go with an individual multi-life program.
Finally, mutli-life LTCi programs hold two big advantages for the agents who sell them; (1) first year commissions for multi-life are two to three times higher than those found on group policies, and (2) your renewals are vested. No other agent can come in the back door with a broker of record letter and disrupt your renewal income. With buy-ups, family and new employee enrollments you can create a stream of income for yourself that is vested and secured!
Join us September 25th or 26th for our Multiple Streams of Income continuing education and sales meetings where you can learn about all of our exciting multi-life long-term care insurance programs that will suit your clients’ needs and create a vested renewal stream of income for you.
Thanks Sandi and I’d like everyone to know that you will be teaching your California Partnership course for us on October 9th at the Woodland Hills Country Club. They can register today on the website.
Your article favors multi life but when we talked, you thought group was better for my situation. Any comments?
Rosanne:
First, this is an academic conversation. Second, for the group we discussed true group is probably the call; you have a large group (3000+) where the employer isn’t willing to pay a few dollars to get the employees into the game. Generally speaking however, for groups under 500 employees (which is the bulk of employers groups) and where you can get the employer to put a few dollars into a core benefit, multi-life is king! Hope this helps; if not give me a call.