In recent market research we conducted with Genworth, we
learned that when individuals arrive at the care community
seeking end-of-life options, $1,500 to $3000 per month of
supplemental cashflow is generally enough to give them the
desired freedom of choice for quality extended care. The
supplemental approach allows us to serve the larger need for
finding solutions for mid-market customers.
Long-term care or chronic illness coverage?
As combo policies proliferate the marketplace, it is critical
for distributors and advisors to understand significant product
differentiators in design and benefit payout. The most central
question to answer about the proposed policy is: is it a long-term
care (IRC §7702b) or chronic illness coverage (IRC §101g)? While
both provide tax-free benefits for chronically ill individuals, the
following basic knowledge is important:
§7702b requires the agent to complete state-mandated
continuing education, usually every two years. §101g
does not.
§101g chronic illness benefits come in two flavors: “no-cost”
living benefits and “pay-as-you go” guaranteed chronic
illness benefits.
• “No-cost” is a misnomer; when the policyholder qualifies
for chronic illness benefits generally the insurance
company re-evaluates their morbidity and mortality profile
(much like a life settlement) and makes a lump-sum offer
of some percentage of the policy’s face amount. This is
called the “discounted” method of payment — the cost
comes at claim time.
“For too many years we’ve answered
the call with a one-size-fits-all,
one-and-done solution.”
“Currently, the shortest distance between
premium and risk remains traditional LTCi.”
• “Pay-as-you-Go” means that the policyholder incurs an
extra premium, and when qualified for the chronic illness
benefits, they receive a fixed percentage of the face
amount monthly (2%, 3% or 4%) until the death benefit is
depleted. If they die before depletion, a beneficiary will
receive the residual value. The cost of the “pay-as-you-go”
option can vary substantially.
• The value of “Pay-as-you-Go” is that the advisor and
consumer understand, at point of sale, what the extended
care benefit is and what it costs!
How the policyholder qualifies for the extended care benefit
is critical in the combo discussion. The Health Insurance
Portability & Accountability Act (HIPAA) has settled this
issue for policies regulated under §7702b since 1997. §101g
chronic illness benefits have evolved since 1997 and have
been influenced by HIPAA, NAIC Regulations and the Pension
Protection Act. Newer policies, filed with the Interstate
Insurance Compact, using §101g, now generally utilize a
qualifying definition akin to HIPAA. However, older policies
still being offered in the marketplace may include “permanent
disability” as a qualifying event. Combo products that have
not been upgraded to this newer language should be an area
of serious concern to BGAs and advisors.
For the last 15 years our “elevator speech” has not realistically
addressed the real danger for most people. Its single-minded
focus on catastrophic risk has left many unprepared. BGAs and
advisors must broaden their approach, recognizing that many
consumers would be well served with a supplemental solution. By
determining the client’s perception of the risk, the smart advisor
can tailor-make a cost-effective answer from a new abundance of
complementary planning options.
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