Ways to Add MORE Value to a Client’s Policy & Your Next Sale
As an advisor, you always look for ways to add value to the insurance plans you recommend to your clients. One example is to suggest a LTC/Chronic benefit rider on their life policy. Riders have become very popular in recent years. According to LIMRA’s 2022 Insurance Barometer study, “4 in 10 consumers are very concerned about how they will pay for long-term care services”. Many of the case designs we run for our AgencyONE 100 Advisors include these riders. They offer clients another layer of protection by covering future long-term care needs. Consider pricing your cases with AND without these riders to see if the cost is justified, but…. which product solutions work best with an LTC/Chronic Benefit Rider?
Let’s look at two case scenarios – the first using an Accumulation-focused solution and the second a Protection-focused solution.
Accumulation Solutions
Let’s assume a 52-year-old male with a Preferred NT rating and a $25,000 annual premium payable to age 65. The initial death benefit is $328,207. The rate of return (ROR) is 6%, and the policy will pay income from ages 71-85. A properly designed accumulation solution will usually have a minimum non-mec death benefit based on the premium contributed. The death benefit increases according to the cash value until the premiums stop and the death benefit drops to corridor, which maximizes cash values and minimizes charges. Adding a Long-Term Care (LTC)/Chronic Rider may lower the initial minimum non-mec death benefit slightly, but the real impact on the policy occurs later during the cash accumulation and income phase. The addition of the LTC Rider sets the monthly benefit to the initial face amount.
Accumulation Policy Values Without an LTC Rider
The projected accumulation value on the initial death benefit ($328,207) is $426,398 at age 65. The projected income using withdrawals to basis and then standard loans will be $55,080 per year from ages 71-85.
Accumulation Policy Values With an LTC Rider ($6,466 monthly benefit for 50 months)
The initial death benefit is $323,301 (approx. 1.5% [$4906] less than the initial Death Benefit without an LTC rider) with a projected accumulation value of $418,135 at age 65 (approx. 2% [$8263] less than the initial projected accumulation value without an LTC rider). The projected income using withdrawals to basis and standard loans will be $53,088 per year (approx. 3.7% [$1992] less projected annual income than without an LTC rider) from ages 71-85.
Adding the LTC Rider in this scenario does not have much of a financial impact on the values above, however, it is important to keep in mind that the insured cannot take income and LTC benefits at the same time. Additionally, any distributions from the life policy will reduce future LTC benefits. This could impact the way you position the sale for your client. Please remember that the accumulation and income projections are not guaranteed, and the values are based on the future returns of the indexes chosen, so costs/charges may have a more substantial impact on both scenarios.
Protection Solutions
Again, let’s assume a 52-year-old male with a Preferred NT rating and a life pay policy with a $1,000,000 death benefit and coverage to age 121. Index Universal Life (IUL) policies are run at 5.50% and the Guaranteed Universal Life (GUL) is fully guaranteed to age 121.
In my opinion, Protection-based products are better suited for adding LTC/Chronic Riders. Protection products offer more design flexibility and, since they are not run for income, the death benefit can be applied to LTC expenses, assuming the client qualifies. AgencyONE offers quite a few options with a specified death benefit and allocates a portion of the death benefit to the LTC pool – for example – $500,000 of LTC coverage on a policy with a $1,000,000 death benefit.
The following Protection-based options are from 3 of our Carrier Partners. The first group is priced without an LTC Rider while the second includes a rider:
Options without LTC Rider
Assume: $1,000,000 of death benefit
- CARRIER A: Solve to age 121. IUL rate – 5.5%. $10,025 annual premium. Policy guaranteed to age 90.
- CARRIER B: Solve to age 121. IUL rate – 5.5%. $10,604 annual premium. Policy guaranteed to age 87.
- CARRIER C: Policy guaranteed to age 121. $11,238 annual premium.
Options with an LTC Rider
Assume: $1,000,000 of death benefit with a $20,000 monthly LTC benefit for 50 months
- CARRIER A: Solve to age 121. IUL rate – 5.5%. $11,448 annual premium. Policy guaranteed to age 90. Annual premium is $1,423 higher- 14.19%.
- CARRIER B: Solve to age 121. IUL rate – 5.5%. $11,382 annual premium. Policy guaranteed to age 87. Annual premium is $778 higher – 7.34%.
- CARRIER C: Policy guaranteed to age 121. $13,065 annual premium. Annual premium is $1,827 higher – 16.26%.
Let’s consider a possibly better and more affordable option that still includes LTC Coverage.
Assume: $1,000,000 of death benefit with $500,000 of LTC Benefit – $10,000 monthly benefit for 50 months
- CARRIER A: Solve to age 121. IUL rate – 5.5%. $10,846 annual premium. Policy guaranteed to age 90. Annual premium increases by $821 compared to the no LTC Rider option – 8.19% but $602 less than the increase in premium stated above.
- CARRIER B: Solve to age 121. IUL rate – 5.5%. $10,993 annual premium. Policy guaranteed to age 87. Annual premium increases by $389 compared to the no LTC Rider option – 3.67% but $389 less than the increase in premium stated above.
- CARRIER C: Policy guaranteed to age 121. $12,701 annual premium. Annual premium increases by $1,463 compared to the no LTC Rider option – 13.02% but $364 less than the increase in premium stated above.
While the above information is based on just one pricing cell, the example helps to show where the value lies in product and design. With your clients who have larger cases, consider allocating some of the death benefit towards LTC instead of the whole face amount. It still provides good value to the client AND helps keep the cost of the overall policy down. AgencyONE works closely with our Advisors and considers including these riders in certain case models to determine if the added value justifies the cost.
Contact AgencyONE’s Case Design Department at 301.803.7500 for more information or to discuss a case.
