How financial advisors can overcome long-term care insurance buyer hesitation

Selling traditional long-term care insurance (LTCi) policies has been challenging for many financial advisors in recent years even though there is a clear need for these products. Tom Riekse, managing partner of LTCI Partners, LLC, recently shared his insights into some of the obstacles that face advisors in helping clients overcome LTCi buyer hesitancy, the solutions he uses to address these obstacles, and his “best practices” for finding success in the LTCi market.

LTCi challenges

The challenges related to traditional LTC over the past few years, according to Riekse, typically fall into two areas: underwriting and pricing.

“Because older LTC products missed on actuarial assumptions related to interest and lapse rates, and states were hesitant to grant premium increases, this meant that when in-force increases on older policies were implemented, they were significant and gave traditional LTC a bad reputation,” he said. “Carriers re-priced products with more conservative pricing that were less likely to have rate increases, but the damage was done, and advisors were wary of offering valuable protection. Carriers also tightened underwriting to only take the best risks, which also led to some bad experiences with clients being declined coverage.”

Reasons for owning LTCi

There are many reasons, however, that some clients may want to consider buying a traditional LTCi policy, said Riekse. Understanding these reasons will help in aiding a client or prospect in overcoming LTCi buyer hesitancy. The reasons include:

• A traditional LTCi policy offers pure protection for those without the need for additional life insurance.
• There are great tax advantages of owning coverage, especially for business owners or people who own Health Savings Accounts (HSAs).
• It offers an ability to “dial in” affordable premiums but maintain meaningful benefits.
• The potential to avoid taxes on state-based LTC plans, such as that offered in Washington State.
• It provides an ability for the owner to qualify for LTC Partnership Benefits, which can help protect assets against Medicaid “spend down.”

Addressing the challenges

So, what are some of the solutions that have been introduced to help advisors fill in the long-term-care coverage gaps and overcome LTCi buyer hesitancy?

First, Riekse pointed out, more life products are offering LTC riders, which can play a role in LTC planning. Hybrid Life/LTC started offering plans with longer pay periods in order to make premiums more affordable for consumers and coverage that is similar to traditional LTC plans. As far as traditional LTC is concerned, as the pace of rate increases slows down, advisors and consumers are coming back to take another look at traditional LTC, since it provides the most long-term care leverage per premium dollar and has some great tax advantages as well, he said.

The underwriting process for traditional LTC has also improved. As Riekse pointed out, “carriers are investing in e-apps and automated underwriting, which should make the process smoother for advisors and consumers.”

Best practices for selling traditional LTCi

To help advisors wade through these obstacles and sell more LTCi, Riekse shared a few best practices:

First, he said, explain to clients that in order to “get a quote” it is first critical for them to do some preliminary underwriting to see what options are available. “It doesn’t make sense to present multiple confusing illustrations without knowing how health impacts what plans are available,” he said.

Then, after finding out if LTC insurance is an option, “we recommend designing a plan using three simple building blocks,” he said. They are:

1. First, ask how much coverage is desired based on possible care needs. This can determine the monthly and total benefit quoted.
2. Next, determine if you want the benefit to grow in the future – this means adding automatic inflation protection.
3. Finally, the advisor should ask the client: If long-term care benefits weren’t used, would they like any death benefit or return of premium to be included in the plan?”

Once those three building blocks are determined, Riekse added, “you can pick the type of plan and how to fund it – traditional, hybrid, annuity LTC plan, etc. Make a recommendation of product and carrier, but also give a backup option. Avoid having the client decide between 10 different choices – paralysis by analysis will happen!”

Finally, Riekse said LTC plans and underwriting change; so, it’s smart to partner with an organization that specializes in LTC planning, can assist with products, and provide point-of-sale support.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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