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Call today: 720.344.0312 Recent LTC Articles MAKING THE BEST OF IT Senior Market Advisor December, 2004 By Wilma G. Anderson Making a long term care insurance (LTCI) sale under ideal conditions – to health, solvent, motivated buyers age 65 to 75 – is challenging enough. When you’re dealing with an impaired risk – a prospect who wants coverage but can’t stand paying another premium or a cocky small-business owner – the going gets tougher. You’ll need an even stronger set of sales skills and more creativity to clinch the deal. Let’s look at a few unusual situations and see how you can meet your clients’ needs, be creative and make the sale, despite the challenges. It’s not uncommon to find older couples with one healthy spouse and one with a condition, such as multiple sclerosis or Parkinson’s, that precludes placing the individual with a standard LTCI carrier. If you propose to sell insurance to the healthy spouse without addressing the needs of the other individual, you could lose the entire sale. The left-out spouse may think, “What about me?” Or, the healthy spouse may say, “If you can’t insure my spouse, I don’t want a policy either.” In this situation, you have two choices. You can place both spouses with an insurer that accepts impaired risks, or you can place the healthy spouse with a standard carrier and use an annuity to help self-fund the uninsurable spouse’s future care needs. At least one insurer offers an impaired-risk policy that provides limited LTC benefits for many people with chronic illnesses. The ability to cover someone who’s otherwise uninsurable is an advantage, but there are drawbacks. If you go this route, take a close look at the coverage limits offered on the impaired spouse. Does the limited coverage appear to be worth the cost? Scrutinize the financial strength of the carrier. This is crucial because the impaired-risk carrier will probably require you to insure the healthy spouse if you’re applying for coverage for the impaired spouse. If you don’t want to go this route, or if one spouse can’t be underwritten at all, the self-funding approach is another option. You can tell the uninsurable spouse, “Unfortunately, it’s a little too late for you to apply for long term care insurance. Later, let’s take a look at your financial resources and perhaps reposition some of your assets into a tax-deferred investment vehicle that can help your money work a littler harder. When you need care, you can access those dollars to help pay for nursing home care.” Tell the healthy spouse, “It’s even more important for you to get a long term care policy because your own health will change when you’re taking care of your spouse. Later, when you need care, you’ll be really glad you’re covered.” Get the impaired prospect’s agreement and make it clear you’ll offer several solutions when you deliver the spouse’s LTCI policy. Although you aren’t providing insurance to both spouses, you are at least proposing a solution to each souse instead of leaving one out. In this situation, do not try to sell the annuity and an LTCI plan during the same appointment. If you do, you’ll confuse your prospects; they won’t know what to but, and you probably won’t close either sale. Instead wait until you deliver the LTCI policy to discus the annuity. Go over the LTCI policy’s schedule page and congratulate your client for making a great decision. Then, make the transition. You can say, “The last time I was here, we talked a little bit about your financial resources and setting aside a portion of those resources to pay for care when you need it. What types of investing have you done before?” Now you can begin to do a fact finder and delve into the couple’s investments. Are their investments all taxable? Do they have any annuities? Older annuities don’t have a waiver of surrender charge for withdrawals to cover nursing home costs, but most new annuities do. Show the client the annuity brochure, highlighting the nursing home waiver in the new contract. If the new annuity would be a better deal and makes sense financially, you can complete the paperwork for a 1035 exchange. If your client’s money is in CDs or mutual funds, you can show how annuities can provide superior after-tax returns over the long term. A simple chart does the trick. Your client may ask what kind of annuity you recommend. The answer depends on the client, what he’s used to and his own personal risk tolerance. For many, a simple fixed-rate annuity works. Other will favor a variable annuity with a rider protecting their capital as both a death benefit and d distribution benefit, even if the stock market declines. For some, an equity-indexed annuity (EIA) is an excellent choice. An EIA is a fixed annuity that allows the investor to participate in the stock market’s upside potential – such as the S&P 500 or another major index – while eliminating the downside risk by guaranteeing the principal and crediting a minimum interest rate, typically 2 percent to 3 percent. Be creative and consider all alternatives. You don’t have to put all of your client’s money in one type of plan. For instance, you could pt half in a fixed annuity and half in a variable annuity (assuming you’re securities licensed), or even allocate some money to all three types of annuities. Unless your client needs cash immediately, deferred annuities are best; consider an immediate annuity only if there’s a need for immediate cash flow and no other way to generate it. “I DON’T WANT TO PAY ANOTHER PREMIUM” Some prospective clients know they need LTCI and can afford it, but don’t want to pay the premium. In this situation, look to a multipurpose policy. Many older people have paid-up life policies, and some have built up a substantial cash value. A multipurpose policy that combines life insurance and LTCI can help you overcome the premium-resistance barrier. It’s as simple as completing an application and making a 1035 exchange from the client’s existing policy into a single-premium whole life or universal life policy. These policies can prepay part of the death benefit or the life insurance policy for long term care costs at a nursing home, assisted living facility or home. The client never pays a separate premium because the premium for the LTC benefit is deducted from the interest earned inside the policy. It can be helpful to compare the cost of the LTCI benefit in a multipurpose policy with the premium cost of an ordinary LTCI policy. 50-SOMETHINGS AND BUSINESS OWNERS People in their 50s and early 60s aren’t as motivated to buy LTCI as older people because the need doesn’t seem as pressing, though most have some understanding of the financial risks they’ll face later in life. But even a motivated 55-year-old may balk at the idea of paying LTCI premiums – despite their modest cost at younger issue ages – for 30 years or more. A single-pay or 10-pay LTCI policy can be a great choice for people in their 50s. (Keep in mind that such payment plans are available only to applicants younger than 65.) The single-pay plan can be ideal for someone with substantial savings who doesn’t want to pay any additional premiums. It will guarantee benefits forever and the policy-holder will never have to worry about rate increases. Since you’re banking on the insurer’s long-term future, use the strongest carriers available – only “A” rated or better. A 10-pay policy also appeals to people in their mid-50s because it will be paid in full by retirement age, allowing the owner and advisor to plan for retirement without having to budget for LTCI premiums. 15- and 20-pay policies are also available. Individuals who own small businesses, from professional practices to construction firms, can be a great market if you take the right approach. Because LTCI is a key component of estate and retirement planning, networking with estate-planning attorneys and CPAs serving small-business owners pays off. Thanks to a recent change in federal law, LTCI premiums are now tax deductible to businesses, just like other health insurance premiums. LTCI does not have to be offered to all employees; the business owner can choose to carve out himself and, if desire, on or more key executives. Since the business is footing the bill and getting the deduction, the owner won’t be as price sensitive and will be less inclined to shop for the lowest price. This is a great opportunity for a 10- or 15-pay policy. Once you’ve insured a business owner, ask him if he belongs to any local groups or associations – the Rotary, a local businesswomen’s group, or a local professional organization – that look for speakers. With that referral, you can appear before the group as a member-endorsed speaker. Even better, you may have the opportunity to sell a group policy within that organization. USE EMOTIONS TO CREATE A NEED Even if you’re dealing with a well-to-do business owner, don’t assume you don’t have to create the need for an LTCI plan. You always do. Assuming that a prospect knows about LTCI and his future needs is a trap. Even business owner and professionals who seem to be sophisticated about money don’t want to think about getting old and dependent, or about how much care will cost in the future, not that hard data mean the most to the sale. The LTCI sale never hinges on logic. It’s an emotional choice. The prospect must have an emotional need to protect his assets, plan for the future and eliminate the burden on his family. One of the best ways to create need is to ask the prospect, “What are your plans for when your health changes?” Notice it’s not “if” but “when.” This gets the prospect to think about his future in a very concrete way. After you’ve struck that emotional chord, delve into logic – the costs of care, premiums, elimination periods, the carrier’s financial strength and other policy details. The reverse order likely won’t work. There are different wrinkles that make the advanced sale more challenging – and potentially more profitable: People not wanting to pay premiums, a spouse being uninsurable, business owners needing education about the future. Master all the available solutions and continue to follow proven LTCI sales techniques and you’ll profit in the advanced market. Click here to return to list

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