Life/LTC Combo Products Are NOT Cheaper Than Stand-alone LTCi Policies

[CALTCAgent]

What is the benefit trigger on the GUL policy we are talking about here, is it permanent or 90 days ?

 

[TxJohnny]

90 days. No need to be permanent. Your doc certifies two ADLs or cognitive to activate.

But in essence you are borrowing from yourself (your heirs), so unless it is permanent there is not likely to be advantageous to policy holder to activate the chronic illness rider as opposed to paying for short term stays out of pocket. Or, it depends.

 

[LGilmore]

"A GUL can offer price and (some) benefit certainty."

How so on the LTC rider side if it is not used? I understand a stable premium on a fixed dollar amount, so a person would maybe buy more benefit to plan ahead for inflation, but again it comes down to what I am reading it somehow the money is not "wasted" in a GUL/LTC combo. Again I ask how so? Is the death benefit a higher payout?

Yea, I get the concept of if the LTC is used, it reduces the DB, but if it's not used, how does it increase the DB?

I'm just not seeing the claim that an stand alone LTC policy is wasted premium in comparison, I am waiting for somebody to show me how a LTC rider is better outside of a level premium... ?????

 

[aclaro]

What is the benefit trigger on the GUL policy we are talking about here, is it permanent or 90 days ?

You bring up an important distinction...a true LTC rider (added premium) vs a chronic illness rider (added cost when you go to use it). They have slightly different language (the word permanent) and the costs are completely different.

 

[Mr_Ed]

No, I don't concede that at all.

And when assessing the worthiness of any purchase, isn't it always relative to value received? Wouldn't exchanging one dollar premium for one dollar benefit be the equivalent of exchanging fifty cents premium for a coin flip where by heads equals one dollar benefit and tails equals zero dollar benefit?

There is value in buying certainty. A LTC policy may stay forever in its policy jacket unused. The cost may increase, again and again.

A GUL can offer price and (some) benefit certainty.

One policy type need not be better than the other. They do different things, for people with different needs. Or for people with different concerns.

I'd love to see a GUL policy with a LTC rider that is NOT 2x to 3x more expensive than a traditional LTCi policy.

Please post an example.
I'd love to be proven wrong.


mred

 

[TxJohnny]

I'd love to see a GUL policy with a LTC rider that is NOT 2x to 3x more expensive than a traditional LTCi policy.

Please post an example.
I'd love to be proven wrong.

A recent MOO scenario:

F - 65 NT

Health: DM w/diagnosis more than 20 years (age 25); this is a knockout for LTC w/MOO but, with excellent control (< 7.0 A1C) gets her Standard for a life policy.

A GUL for 500,000 face amount: 11,450 Ann; this premium can be increased and tailored into a set number of years (i.e., 63,690 x 3 years) providing a truly guaranteed contract. 190k over the next 3 years will become 500,000 at some indeterminate future time.

If this woman would qualify for a LTC policy with MOO, and at a non-substandard rate, it would cost her 6735 per year (5000 per mo. x 5 years, 90 day elim waived for HH, 100% HH, 3% compound for 20 years), until she dies or goes on claim.

Which is a better way for her to spend her money, or allocate her assets? Can you at least argue each position (assuming, in this case, that she would qualify for a LTC policy)?


Note: correction to a reference in Mr_ED's post: I'm not referring to a LTC rider, but a chronic illness rider. Like an accelerated DB rider, but for LTC.

 

[scagnt83]

A recent MOO scenario:

F - 65 NT

Health: DM w/diagnosis more than 20 years (age 25); this is a knockout for LTC w/MOO but, with excellent control (< 7.0 A1C) gets her Standard for a life policy.

A GUL for 500,000 face amount: 11,450 Ann; this premium can be increased and tailored into a set number of years (i.e., 63,690 x 3 years) providing a truly guaranteed contract. 190k over the next 3 years will become 500,000 at some indeterminate future time.

If this woman would qualify for a LTC policy with MOO, and at a non-substandard rate, it would cost her 6735 per year (5000 per mo. x 5 years, 90 day elim waived for HH, 100% HH, 3% compound for 20 years), until she dies or goes on claim.

Which is a better way for her to spend her money, or allocate her assets? Can you at least argue each position (assuming, in this case, that she would qualify for a LTC policy)?


Note: correction to a reference in Mr_ED's post: I'm not referring to a LTC rider, but a chronic illness rider. Like an accelerated DB rider, but for LTC.

There are some HUGE differences between those two. But before we get into that, what Ed is complaining about is when people who would actually qualify for LTCI are talked into a Life Rider instead. Your example is different since she does not qualify for LTCI. Of course the Rider is a good option if they cant get normal LTCI.


Now for the differences

1. The Rider requires PERMANENT impairment. Many LTCI claims are not for permanent impairments (at least 50% based on research that I have found). This is the biggest difference between the two options.

This is going to come back and bite a lot of agents in the ass. You are looking at a huge E&O claim if you happen to omit this fact from your presentation.


Yes there are Riders out there that do not require Permanent Impairment... but they come at a higher premium vs. the Chronic Riders that mostly are free or really cheap to add.


2. The Rider offers a higher benefit to start (assuming its a permanent impairment). But by year 15 the LTCI will give the higher benefit.


3. The LTCI offers other benefits like Care Coordinators, Bed Reservations, Home Modification benefits, Cash Benefit, etc. The Rider does not.



If you compare the premium for someone who actually qualifies for a Standard rating, the LTCI would probably be around $2K/y cheaper. But just based on your example the client is paying around double for the Life Policy vs. standard LTCI.



Now you say that she can put in $190k and get $500k in benefits...

But what if she just keeps the extra $6k in her retirement account and gets 6% off of it??
In 15 years that saved $6k will be worth almost $150k... in 18 years it will be close to $200k.

If she does the 3 pay option of $190k, that would be $450k that she could have had in her retirement account after 15 years, and $600k after 20 years.

So with a life pay option, she is forfeiting $100k-$200k in savings over the next 15-20 years, vs. traditional LTCI.

With the 3 pay option, she is forfeiting $450k-$600k in retirement savings over the next 15-20 years.

And all for an inferior LTC benefit.

The Lost Opportunity Cost of this scenario is HUGE. In 20 years she would have $30k per year less in retirement income if she went with the 3 pay option vs. traditional LTCI.


Hell, she could just take the $190k, put it in a Fixed Annuity paying 3.5%, and it would pay out $7k per year guaranteed in interest to cover the LTCI premium. Assuming a client who actually qualifies for LTCI at a standard rate, you could even throw ROP on the policy since the Premium would be closer to $5k than $7k.

GUL and Chronic Illness Rider is NEVER a better deal than LTCI... unless they dont qualify for LTCI.


Now there are a few WL and IUL options that do give traditional LTCI a run for its money. But they are true LTC Riders and not just Chronic Illness Riders.
The main one being Mass, and then Guardian is a close runner up.

Mass is the only life option that offers monthly benefit inflation protection (as opposed to just extending the years), along with traditional LTCI triggers.
It also is the ultimate ROP option since it lets you use the premiums in life, LTC, or death. And unlike other products, it actually grows your Cash Value at a rate of 2%-5%.
The catch is that the Mass policy will be 3 times the cost of a traditional policy.


Long story short. Be VERY careful pitching Chronic Illness Riders in place of real LTCI.

 

[TxJohnny]

Now for the differences

1. The Rider requires PERMANENT impairment. Many LTCI claims are not for permanent impairments (at least 50% based on research that I have found). This is the biggest difference between the two options.

This is not so.

 

[scagnt83]

This is not so.

It most certainly is. That is what makes it a Chronic Illness Rider and not a Long Term Care Rider.

Refer to page 2 of MOOs "Frequently Asked Questions" for accelerated benefit riders. Look at #3 under "Qualifying for Benefits".

Does the chronic illness need to be expected to be
permanent? Yes, the chronic illness acceleration should
not be requested for a temporary condition (e.g., a
broken hip).

http://blogs.mutualofomaha.com/express/files/2014/05/LY28713.pdf


You need to google 7702B Riders vs. 101g Riders. Last I checked MoO was 101g.

 

[TxJohnny]

Well, in the Q & A it says it "should not be" used (and it shouldn't - it's expensive if activated too far out). Nowhere does it say it "can't be used." The rider itself makes no mention of permanent, or expectation of permanent, impairment.

I've spoken with the design team and been assured that it need not be permanent. Yes, I have an email in file stating this.