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Message from Tobe:

There are many “dread” diseases, but the ones that I’d like to highlight for this newsletter are those that are “cognitive” in nature.  When we use the term “cognitive”, we are being inclusive and not just referring to Alzheimer’s, but rather to all forms of Dementia. If your client has an immediate biological family member with a cognitive history, we believe that it is best to consider LTCI sooner rather than later.  I am not a person to generate fear, but we have seen the underwriting guidelines becoming more restrictive rather than more lenient in this area.  At the present time, if your client has two immediate biological family members (mother, father, sibling) with a cognitive history, it could be challenging for your client to secure LTCI.  If those family members were diagnosed prior to age 70, the options for your client to be able to secure coverage could be even more limited.  We have one traditional LTCI company whose underwriting guideline is that if someone has even one immediate biological family member with a cognitive history, there is a limit to the monthly benefit as well as to the benefit duration that the person will be allowed to apply for.  While the hybrid companies have always been more liberal when it comes to cognitive family history, just recently one of our hybrid companies tightened things up and is allowing consideration only if the cognitive history is with just one immediate biological family member rather than with two.   It will be interesting to see if the other hybrid companies follow suit. The takeaway from all of this is that if there are cognitive concerns in your client’s family history, recommending the investigation of LTCI sooner rather than later could be a wise course of action.

“Q & A” of the Month:

Q: Long term clients of ours have just been notified that the LTCI policies that they purchased back in 2005 will be going up 40% over the next 4 years.  The insurance company included a letter with their options, but as their advisor I don’t feel comfortable making any kind of a recommendation because I really don’t understand what the tradeoffs are.    Who can they talk with about this so that no mistakes are made going forward?

A: Rate increases can be unsettling because clients get lulled into paying what they have been paying for a number of years.  I can attest to this personally as someone who has owned LTCI since 2000 and who has experienced more than one rate increase.

The first thing that we always do is to remind our clients that they did a fantastic job purchasing LTCI when they did!  The policies that were offered years ago provided robust coverage at a very reasonable cost.  Even with a rate increase, there is tremendous value in these older policies.

The first person that your clients should talk with would be the agent who sold them their policies.  With most LTCI companies, agents receive renewal commissions on policies as long as premiums continue to be paid. It is the responsibility of agents to be there for their clients when there is a rate increase.  If your clients learn that their agent has retired, they can speak directly with the insurance company at the phone number that is listed on the rate increase letter.

When talking about rate increases, what we need to remember is that LTCI coverage is “guaranteed renewable”.  “Guaranteed renewable” means that as long as your clients pay their premiums on time, their policies will be renewed even if their health changes.  “Guaranteed renewable” does not mean that the premiums are guaranteed to never change.  The only way that the premiums may never change would be if your clients purchased an “accelerated payment” option. That means that when they first purchased their policies, they elected to pay for their policies as either a single premium (just one payment) or as a 10 pay (10 years of payments) with no further premiums due after the single pay or the 10 pay. Most clients do not elect an “accelerated payment” option as it is a significant outlay of funds on the front end, but if they live a long life, it often works out to their advantage to have paid up their policies in the early years.

When your clients receive a rate increase letter, they will be presented with a few different options, but there are often other options to choose from.  We recommend calling the insurance company and discussing the other options that may be available.

In lieu of a rate increase, your clients should be able to do any of the following: 1) They can pay the rate increase as it has been stated.  2) They can decrease/downgrade some coverage aspect(s) of their policies.  3) They can let their policies lapse and accept the Contingent Nonforfeiture option that may be made available.

Most of our clients select either #1 or #2, but all clients are unique and what works for one client may not work for another.   If your clients can afford to pay the rate increase, most advisors will encourage their clients to do just that.  If the clients cannot afford the rate increase, we recommend reviewing what aspects of their policies your clients are open to decreasing/downgrading.  This usually means either lowering the daily or monthly benefit, decreasing the number of years in the benefit duration, removing or lowering inflation, raising the elimination period, or removing riders.   Oftentimes the insurance company may offer a “landing spot” inflation that allows your clients to retain the growth from the existing inflation, but then dialing the inflation back to the “landing spot” that is offered.  For those clients who have had 5% compound inflation for many years, they may be offered 3% compound or 2.85% compound, to avoid a rate increase all together.  Other clients may choose not to decrease/downgrade their inflation and would instead rather lowering the daily or monthly benefit or decreasing the number of years in the benefit duration.   All of these options can be quoted by the insurance company.  Some LTCI companies will email the quotes to your clients, and others will only do it by regular mail or fax.

Yours in success,
— Tobe Gerard