One objection often heard from non-buyers of long-term care insurance is ‘what if I never need it” In other words if I never use my policy I’ve wasted tens of thousands of dollars in premiums, why should I buy this’ While I could list the myriad of insurance policies that consumer purchase that they never ask this question about and are less likely than LTCi to pay a claim I would like to offer a different response to this objection; a guaranteed return of premium rider.
Let’s take an affluent couple who are both age 65, in reasonably good health and who at some level believe that they can self-fund their LTCi risk. You initially propose a $6,000 per month benefit, 5 year benefit plan, 90-calendar day elimination period, 5% compound inflation and waiver of premium. In a survey of three top companies the average premium is about $9,000. You carefully explain the benefits, current and future, and then unveil the premium to the prospects. They glance at each other and say to you, ‘what if we never need this insurance’ If we live into our 80’s we will have given the insurance company close to $200,000 and our heirs will get nothing. This really doesn’t make sense to us.’
Now you may have anticipated this objection. So you whip out your back-up proposal that illustrates the same plan with return of premium benefit. This adds on average approximately $6,500 to the $9,000 premium you’ve already shown them. Then you explain that most return of premium riders pay the estate (or in some cases a named beneficiary) a death benefit equal to the premiums minus any claims paid (point of fact, a few pay a death benefit equal to the premiums regardless of claims but this will be even more costly).
You’ve got ‘em where you want ‘em right’ Probably not! Why’
A. The premium you showed them in the first place was more than they want to spend and now you’ve increased the premium by 73%
B. They still don’t think they’re going to use the policy.
C. Even if they did believe that were going to use their policy they would like to see their heirs get all the premium back at some point.
I’m not saying that any of this is rational. If they had been smart they would have purchased their long-term care insurance when they were younger, healthier and there were 10-pay option premiums that still made sense. But they didn’t. Now, you’ve got to get them to cross a bridge that is even further then you’d planned. How about if you could show them an additional premium that is:
A. Half the cost of the long-term care insurance based return of premium rider’
B. Will return the entire premium regardless of claims.
C. Allows them enhanced death benefit beneficiary options.
I’m suggesting that, instead of using a traditional LTCi ROP in a situation where the clients want the premiums to go to their heirs, you may want to look at a second-to-die life insurance policy as an alternative.
1. A guaranteed death benefit $250,000 second-to-die policy on this couple would cost about $3,200 per year.
2. You could propose a 10-pay plan for the life policy that would still cost clients less than the cost of the ROP (about $5,900 per year for 10-years).
3. The death benefit is paid regardless of the claims paid from the long-term care insurance policies.
4. A specific beneficiary can be named by the insured which is not always possible with an LTCi ROP that could cause a probate or estate tax issue for your clients.
5. The clients can set-up an ILIT to hold the second-to-die policy which provides them with a ‘gifting’ opportunity, and will also shield the proceeds from probate and estate taxes.
6. The death benefit is guaranteed and adds value to their legacy.
Offering a return of premium solution to your prospects may not make the sale. It will however help you identify a real objection from a possible straw man. When the client sees the additional cost involved they could move forward with your suggestion, decide it isn’t worth the extra cost and purchase without any return of premium feature or move onto their next objection. Regardless the second-to-die life insurance guaranteed return of premium option provides a lower cost alternative to traditional LTCi ROP with clear advantages.
BTW, the second-to-die life scenario works well for younger clients as well.
See how this idea works for the long-term care insurance prospects you’re currently working with. Email me today with the details and we’ll get you the proposals that you need;barry@paradigmins.com.