Long Term Care and Disability Insurance

When a LTC Rate Increase Occurs, How You React…

Presented by Leonard Berthelsen Rate increases in any product line are never popular, nor are they a pleasant conversation with your client. Long term care insurance is especially difficult due to the fact that your client may be considerably older now than when they originally purchased their policy. That distance between purchase time and now present an ever challenging set of issues for both you and your client. Should I be proactive and address this right away with my client or do I wait for the news to leak out and maybe the client has calmed down before they actually get the rate increase notice? The prudent way would seem to me to address it with the client as soon as you can. It certainly is better hearing it from you than your client getting blind-sided by a news story or hearing about it through the grapevine. So what is that conversation going to be like? Well, short of your client going ballistic on you, level heads need to prevail. Most carriers offering long term care insurance or carriers that offered it in the past have gone through rate increases at least once. You may have become seasoned in how to handle it but many agents still struggle today on the best approach when rates go up. It is important to first remember this, you did not make these rates go up, your client did not make them go up and circumstances beyond both of you are controlling this. Market events certainly have been issues for the past 7-8 years. The interest rate that the carrier expected to earn on the invested premiums has not met policy design, utilization in some areas of the product have been higher than anticipated, and the simple fact that people are living longer and developing care issues that LTC was designed to cover is happening more frequently than what the product was priced for. Now that access to home care is so prevalent in our society, policyholders are accessing benefits earlier and receiving those benefits over a longer period of time, thus making the average claim higher. Yes, some of the older plans had designed persistency rates well below what was actually experienced that resulted in necessary rate increases. I do have to say though, if the plan was designed and built within the last 10-15 years, the persistency issue has been relatively the same, very high and quite probably not a reason anymore for the rate increase. So why the lesson in LTC history? How will you explain why the increase occurred and how will you make it understandable? I have gone through several rate increase actions with multiple carriers and my basic explanation remains the same. Reiterate the value of the plan, why they bought it and its value to them in current dollars. This gets your client back in the frame of mind of the product’s importance and the value proposition that convinced them to purchase it in the first place. I’ll create a quick premium comparison for each client demonstrating what the same plan at their current age would cost today and compare it to what they already have in place. This many times will defuse the notion of dropping it and shopping for something else. Rarely will the increased premiums on the existing plan be more than what currently is being sold. Many times the benefits will be stronger in their plan than what they can buy today. Once I have an understanding of the pure premium issue, I can move on to affordability. If this rate increase is going to put the premium out of reach or just more than what they are willing to spend for LTC, then I need to have the discussion about adjusting their current plan. In most cases the carrier will proactively give several “landing points” for the client to consider which generally means they are going to reduce benefits to keep the premium at a level that is acceptable. Not all benefit reductions are negative or bad. Maybe the client purchased it with inflation protection and it has grown to an acceptable daily/monthly level and they are okay with freezing it at that level. An easy solution to the problem. Some carriers will allow the reduction in the percentage of inflation protection as a means of reducing premiums. My conversation may need to go into possibly looking at reducing the duration of the benefit or other riders as a means of reducing premium. The main advice here is really very basic. Be proactive with your client when you know that a rate increase is coming. Start the conversation as soon as you know the facts. Understand the “landing points” that the carrier is offering and make sure that you restate the reason why they purchased the plan in the first place. The importance of long term care coverage for that policy owner is more important today than ever before, and the price is never going to be more affordable than it is right now. We all are getting older, living longer and in many cases dying slower with health related issues. Let’s just make sure that our clients are making the right decisions regarding the rate increase and for the right reason.
Annuities

4 Risk Rules

Presented by Deb Strong Risk 1 – Inflation What is the #1 increase in expenses for a retiree?  Most people will say it is Health Care, which isn’t actually accurate.  The #1 increase in expenses in retirement is daily living. Every day is a Saturday.  What is inflation directly tied to?  The increase in the costs of good and services over time…daily living.  Not to mention, do you expect inflation to go up or down?  Similar to taxes, everyone expects inflation to go up over time. So having at least a portion of the client’s money allocated to a policy that can help them combat inflation is just smart planning for your client. Risk 2 – Market Volatility In the last 14 years the market has corrected by 50% twice!  Over that 14 year period investors would have averaged a 2% annualized yield in the market.  We are at the top of a 6 year bull market, when the average bull market only lasts 4.  If client’s are heavily allocated to the market they may not have time to recover from another major correction. Hence, the reason I like the rule of 100.  Take the client’s age from 100 and that is the percentage of their assets that should be at risk (example 100-70=30).  This means my 70 year old client should not have more than 30% of their retirement assets at risk. Not to mention, from the Future of Retirement Income Study, 60% of annuity owners and 61% of annuity considerers would be willing to pay ADDITIONAL fees to keep from losing any money in a bad year, while gaining SOME of the market in good years.  People are willing to pay for what an index annuity does contractually! Risk 3 – Interest Rate Risk Many clients use bond funds in their retirement income plan.  However, most of them do not understand the inverse relationship of bond fund rates to interest rates.  In 2013, 88% of bond fund rates lost money.  The other interest rate risk is for the $11.3 Trillion dollars on the sidelines earning less than 1% interest, not even keeping up in a low inflation market. Risk 4 – Longevity Longevity is the multiplier of all Risks.  One out of 4 people 65 years old today will live past 90.  One out of 10 will live past 95.  People are in retirement as long as they are in their professional careers.  You have to make sure that they have an income they can’t outlive. Unfortunately, many advisors are still using the outdated method of the 4% rule.  Which says that if you have a 50/50 stock bond portfolio you can pull out 4% annually and it would be guaranteed to last 30 years.  We have a White Paper and tools called Rethinking Retirement Income, which is a study done that shows if you use that, you have less than a 50% chance of success.  The real number is more like 2.8%.  What I find as more of the real problem versus the percentages is what happens when you outlive the 30 years?  
Annuities

Annuity Risks Clients Should Consider

Presented by David Corwin I read an email recently and thought it would be great to share some of the talking points and also share some videos supporting the ideas mentioned. It spoke about the different risks that are out there that clients should consider when purchasing an annuity. The first one is Interest rate risk. Typically traditional bond funds may lose value in an increasing interest rate environment so protecting your income becomes paramount and could be accomplished with an indexed annuity contract. Dealing with Inflation risk means that if you have a lot of cash on the sidelines, you would most certainly be exposed to inflation risk. An indexed annuity would help keep pace with inflation and protect your purchasing power. Market volatility risk is hedged with an annuity contract by locking in your recent market gains. Withstanding another correction will only prolong your retirement date. Longevity risk in a recent survey was the biggest fear of seniors. Outliving your assets is becoming a real possibility and creating a guaranteed income stream for life can be accomplished with an indexed annuity with the income riders that have been created in recent years. Here are some great consumer videos to check out. a. Interest Rate Risk https://www.youtube.com/watch?v=evokCdOaLnQ b. Inflation Risk: https://www.youtube.com/watch?v=irA0Uk4-aZs c. Market Volatility Risk: https://www.youtube.com/watch?v=a_FHYUmshKk d. Longevity Risk: https://www.youtube.com/watch?v=lE1jq-Li1zU Share some or all of these videos through your website and/or social media and keep your clients and prospects informed!