Link Life Insurance to LTC Expenses

By Cyril Tuohy
InsuranceNewsNet

For San Diego-based advisor Gene Pastula, some financial advisors have it all wrong when it comes to selling linked-benefit life insurance products.

Advisors and their clients get a little too caught up in the cost of linked-benefit life insurance, and the features that make linked-benefit life insurance attractive.

The answer to selling linked-benefit life is the other way around: Once your client has enough funds set aside to cover emergencies, then it’s time to talk about linked-benefit life insurance, said Pastula, who helped developed the products many years ago.

“The key to this subject is really about: Do you have money in your portfolio sitting around beyond your emergency fund?” Pastula told InsuranceNewsNet.

Does Pastula want to sell more linked-benefit life policies? Sure. Does he have a soft spot for his brainchild? That, too.

But he said that what many people don’t grasp is that if the linked-benefit life policy is kept in force until the policyholder dies, or until the policyholder draws upon it for long-term care or medical needs, then the cost isn’t as relevant.

“What people don't get is that if you keep that policy in force until you die or you need long-term care, then the cost isn't relevant anymore because you are creating an investment that will mature that you know exactly what it's going to be,” Pastula said. “Now you are looking at rate of return, not how much are you going to spend.”

Linked-benefit life offers contract holders a death benefit with a rider to pay for expenses associated with long-term care, critical or chronic illnesses, or terminal illness. These living-benefit riders are triggered while policyholder is still alive.

For those with the means, it makes more sense to transfer money out of a money market, a certificate of deposit or a bond fund where interest rates are so low, and invest it in a linked-benefit life insurance contract, he said.

When interest rates go up again, bond fund investors will get “hammered.”

Not only are linked-benefit instruments going to yield a more precise return, they will protect buyers from the cost of long-term care, since there’s a good chance policyholders will have to face long-term care expenses at some point in their lives.

Advisors who approach linked-benefit life contracts with that in mind are now ready to talk to clients not about how much they are going to spend but about the rate of return, said Pastula, president of Westland Financial Services.

Of course, no one should be getting involved in linked-benefit life products before they build up an emergency fund. Linked-benefit life insurance remains a product that holds more interest among a higher net worth segment.

But for advisors who choose the right product, a linked-benefit life contract is just as important as any other asset in a client’s portfolio, particularly as a hedge against long-term care expenses, which can run as high as $80,000 a year in some parts of the country.

“It could end up being the highest rate of return asset in your portfolio, but people separate it out as a product you pay for instead of an investment,” and that’s not the way to approach buying a benefit-linked life insurance product, Pastula said.

Lincoln Financial, State Life, Genworth and John Hancock remain among the largest sellers of linked-benefit life policies. This product appeals most to people between the ages of 55 and 75 who have more than $350,000 in liquid assets.

Other carriers include Nationwide, OneAmerica and Pacific Life, said Steven M. Cain, a Los Angeles-based principal of LTCI Partners.

Cain said he has seen insurance carriers come out with a new generation of linked-benefit products that are more flexible, especially when it comes to the premium payment. These feature are more popular with the middle market.

Some carriers have developed a pay-as-you-go option, while other carriers offer policyholders the option of paying over five or 10 years, he said.

When getting through to clients, two things matter, Cain said. The first is “mind share,” or a triggering event based on personal experience that will make people consider linking a benefit to a universal or whole life policy. The other is “wallet share,” or what people can afford.

From the advisor’s perspective, more payment options are always welcome even if they can be a bit confusing, especially for advisors who don’t specialize in long-term care planning, he said.

“It comes down to what they (clients) are trying to accomplish and that dictates the recommendation of the advisor,” Cain said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].