How to Talk Positively About Rate Increases

and New Benefits

byNancy A. Dykeman, CLTC, CSA

Where is Your Pain?

The end of the world is not near.

Where do we go from here?

It’s YOUR choice to deny and fight with change or to accept it.

What did you think would happen?

Taking it apart and putting it back together.

“If you can’t explain it to a six year old, you don’t understand it yourself.”

Albert Einstein

Lets go back to the beginning…

The first policy was sold on December 1, 1974 by Fireman’s Fund.

1974 Inflation continues to spiral out of control around the world reaching 11.3% in the USA and 17.2% in the UK and the global recession deepens.

More and more smaller digital based consumer products appear in the shops and the earliest forms of Word Processors appear which resemble a typewriter more than a computer.

After the findings of the Watergate Scandal Richard Nixon becomes the first US president forced to resign from office.

(some of us remember…)

Guess what the premium cost was for a less than 4 year plan at $50-$70 per day benefit with inflation

protection?

Did you think things would remain as they were in 1974?

Pocket calculators start to appear in shops

The first use of UPC or Universal product Code BAR CODE UPC scanner installed in Marshes Supermarket in Troy Ohio

Born This Year 1974

Leonardo DiCaprio Alanis Morissette Jimmy Fallon Victoria Beckham

Oh Boy!(You Tube Video of “Happy Days”)

http://www.youtube.com/watch?v=pQ-ZDYojnnk

Jonathan Pond, from: AARP January 4, 2011

“Many of the biggest and most respected companies that issue both individual and group LTC policies have either raised premiums on existing policies already or have announced plans to do so soon.”

Was it just the claims experiences?

What about carrier revenues not earning what they used to?

Bureau

Inflation Rates Graph

(2003-2013)

US Bureau of Labor StatisticsYear

4.1%

3.3%

3.4%

3.0%

2.5%

2.7%

1.9%

0.1%

1.5%

1.7%

1.6%

03 04 05 06 07 08 09 10 11 12 13

2013

Type Today     

1 Month Bill

 0.03% 

      

3 Month Bill

 0.07% 

      

6 Month Bill

 0.10% 

      

2 Year Note

 0.27% 

      

5 Year Note

 0.77% 

      

10 Year Note

 1.85% 

      

30 Year Bond

 3.04% 

      

 

When interest rates are low then reserves can’t grow. (like they used to)

 Treasury rate information provided by GovPX

So Now What?

It Really Isn’t Hard to Understand!

Before a Premium Rate Increase Letter:Call your client and explain that there is something new coming about his policy. An expected increase in the premium amount.

Explain the amount of increase based on your knowledge and that a letter will be sent to him. Suggest that you tell them the exact amount of new premium, not just a percentage of increase over current premium.

Tell your client that the increase was expected due to claims experience in a class of insureds in which you are included.

Tell your client that the increase was expected because of the current investment situation the carrier faces with this economy

And that the premiums provide the reserves to pay future claims and as your agent, I want your claims to be paid without question.

Advise him that you will explain the options given by the insurance company when the letter is received and you are confident that the options will provide the right choice about continuing the coverage.

Example:

Policy purchased in 1993 with a premium of $78 per month. In late 2012 the proposed increase was $70 per month with a new premium of $148.22.She was given options to reduce the inflation protection (her daily benefit had more than doubled) or reduce coverage.What did she do?

Oh, and remember, back when – these policies were predicted to have higher lapse rates and assumptions were based on mortality, not living many years with chronic health problems.

From 1974 to about 2003 we didn’t experience rate increases.

Since 2003 some policyholders have had more than one increase.

We expect premiums to continue to increase. The actuaries tell us so.

NOW WHAT???

Expect these changes soon:

1. Premiums on new long-term care insurance policies with some carriers, for single women are slated to increase by 20% to 40% beginning in April. Unisex pricing has been the norm until now, with men and women paying the same amount for identical coverage.

2. There are basically two factors driving gender-based pricing: (1) Women live longer and, as such, are more likely to require long-term care, and (2) The length of care for women is generally longer than it is for men

By Robert Klein for RetireMentors, March 11, 2013

CHOICES for your prospective clients:

There also is an increasingly popular breed of "hybrid" policy that some financial advisers are recommending. These policies pair long-term-care benefits with an annuity or life insurance. Thanks to tax-law changes that took effect in 2010, policyholders are permitted to take tax-free withdrawals from these policies to cover long-term care.

Because customers can pay for this coverage with one upfront premium, they can effectively lock in a price for the benefits.

And with the Pension Protection Act 2006, they can use money they already have in qualified and non-qualified funds to pay for the policy, tax-free and the benefits are tax-free:.

Linked Benefit Annuity Products:Benefits received for covered long term care expenses are tax-free and internal LTC rider charges are not taxed as distributions.

Linked Benefit Life Insurance Products:Internal LTC rider charges are not taxed as distributions.

Traditional Long Term Care Insurance (LTCI)New 1035 exchange rules provide tax free options to fund a traditional LTCI policy.

Are you changing your approach, too?

Can you accept the facts and explain the reasons?

Are you willing to adjust?

Is it long-term care insurance products and what they do?

Or is it planning for extended care?

Is it premiums, benefits and features?

Or how extended care is tearing families apart because of the physical, emotional and financial burdens?

Is it paying for care using assets?

Or is it paying for care using income which changes lifestyle?

We should expect a BOOM in long-term care insurance sales and planning ahead by consumers.

When people believe that extended care blows families apart, they will invest money from their income today and during retirement to protect their families.

New delivery of care

New benefits

New ideas

Before early 1990s-County Homes and Nursing Homes

1990-2000-Homecare recognized and Assisted Living was created

Today-Care at Home comes First

Article by Thomas Day

About 73% of all long term care is provided in the home environment typically by caregivers who receive no compensation for their labor.

Another home care arrangement is for family members, who are not living close by or who are employed fulltime, to become supervisors and coordinators of care and to offer only limited, personal, hands-on care. These people may hire a care manager to act on their behalf.

In large urban areas where families have lived together in an apartment complex and grown old together, there is a possibility for residents in the complex to band together and watch out for each other. This might also include limited caregiving services for neighbors.

Assisted Living coverage can now include payment for care as well as some of the rent in the apartment.

Also, some of the homemaker chores of the facility staff can help to get policyholders on claim faster.

Are you still selling lifetime benefits?

Today with average claim of 36 months, or 4-5 years at home, the need for a lifetime of care isn’t as popular.

Cost of lifetime benefits is higher now.

5% compound inflation protection was affordable even when it doubled the premium.

What about FPO?

How about building benefits over time?

What about no inflation and higher daily benefits?

Without a plan for care everything changes and the outcomes aren’t always positive.

With a plan for care, yes, everything changes but the outcomes can be much more acceptable.

What If…insurance doesn’t cover all of the care costs?What If…we stay at home longer at a lower cost in order to stay more independent?What If…a prospective client can’t get through underwriting?

Gender-basedPre-ex

What If…you learn more about combo products and offer them easily?

“Just keep telling yourself this is only temporary.”

Anonymous

“The reason you were born is because all of your ancestors for thousands of years believed that something better was possible.”

SalientAlien

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”

Winston Churchill