70% of people turning 65 can expect to need some form of long-term care during their lives.
We're pleased to present this informational webinar on LTC riders in partnership with John Hancock, a foremost leader in the long-term care insurance space. The webinar covers two LTC riders as well as a single premium product called LifeCare, a hybrid life/LTC product. It's presented by Paul Sanfilippo and David Ricketts from John Hancock. If you have any questions or need support materials, click here to email our Brokerage Sales Support team
Rather read an overview than watch the video? Here's what David had to say:
Long-Term Care Coverage
First of all, why do people buy LTC coverage? There are a few reasons:
- To maintain their independence
- To remain in their home
- To protect their income and assets
- To avoid dependence on family members
- To access high quality care
About 70% of people over 65 are going to need ongoing assistance or supervision due to physical or cognitive impairment. At the end of 2011, the national cost average for one year in a nursing home was $92,000. If that increases by 4% for the next 20 years, by that point we'll be looking at $191,000/year just for long-term care.
Individual Long-Term Care Insurance
There are benefits and drawbacks to traditional individual long-term care policies.
The advantages include:
- They're customized to meet the client's needs (e.g., shorter elimination period, inflation riders, longer benefit period)
- They're designed specifically to cover long-term care
The disadvantages include:
- Potential premium increases, which has happened with a lot of carriers recently
- The client may not use the benefits at all
How do we avoid some of these disadvantages? By using an LTC rider on a life insurance policy instead of a stand-alone LTC policy.
John Hancock's LTC Rider
LTC riders turn a traditional life policy into more of a hybrid policy. Your client can access the policy's death benefit early to pay for long-term care expenses. A life insurance policy with this rider delivers value whether the insured:
- needs long-term care in their lifetime
- wants a tax-favored death benefit
- chooses to surrender for net cash value
John Hancock's LTC rider is approved with all of their permanent products in most states. It is not
available with term products. Please be sure to check with your Pinney brokerage director for the most up-to-date stats on riders, products, and state approvals.
John Hancock's product is based on a reimbursement model, not an indemnity model. In a traditional indemnity model, the insurer sends a periodic check to the client, up to their maximum benefit allowed, to cover the expenses incurred. With a reimbursement model, your client can either set up a direct bill with the facility (by which John Hancock pays the facility directly) or follow a traditional reimbursement model.
Your client's monthly benefit is $10,000. The LTC facility cost per month is $7,000. John Hancock pays the facility $7,000 directly, and the remaining $3,000 rolls over into your pool, where your money lasts longer.
John Hancock LTC Rider Benefits
- Acceleration of the death benefit
- Choice of guaranteed lifetime face amount at a guaranteed premium
- Experience with long-term care insurance
- Responsive and experienced claims staff
- Third party vendors
- Financially strong, highly rated company
- Reimbursement model
- Advantage List
- John Hancock provides this list upon purchase. It shows your client all the facilities through which they can get discounts of 10 - 15%. These include home health care, assisted living, adult day care, nursing homes, and hospice centers.
- This is a customized counseling center available to John Hancock's clients. They provide phone-based referrals and assistance to seniors and their families. They can explain where to go, what to do, how it works, etc.
Acceleration of Death Benefit
Let's talk about the advantages of the acceleration method:
- Simple for clients to understand
- Long-term care rider charges are guaranteed never to increase
- Option to access cash value
For example, if your client has a $500,000 death benefit, that $500,000 is a pool from which he can draw the same amount of long-term care benefits. There are three death benefit acceleration options
to access that money for LTC expenses: 1%, 2%, or 4% per month. With a $500,000 policy and a 2% benefit, your client would have $10,000 per month to access for LTC expenses.
There are a few other features to mention:
- $5 million maximum policy death benefit
- Single 100-day elimination period. The industry average is 90 days, so this is right in line with what you'll find through other carriers.
- Counts as tax-qualified long-term care insurance
Your client must choose the acceleration percentage at issue. It can't be changed later. That's one key difference between John Hancock's LTC riders and a traditional LTC policy.
How Does a Client Qualify for LTC Benefits?
In general, a client who qualifies for a traditional LTC policy would qualify for this rider. On the flip side, a client who generally wouldn't qualify for traditional LTC insurance would probably also not qualify for the LTC rider. Generally speaking, John Hancock is looking at a Table 3 as the max a client can qualify with.
After the elimination period, here's how your client can trigger the LTC benefits:
- Certification of disability or illness by a licensed practitioner
- The condition must be expected to last 90 days or longer
- Disability includes the inability to perform 2 of the 6 Activities of Daily Living (ADLs) or a severe cognitive impairment
These are the same benefit triggers as John Hancock Individual LTC insurance products.
John Hancock's Long-Term Care Continuation Rider
There's a second LTC rider that your client may also be interested in. This second rider essentially doubles the length of time they can claim benefits. If the rider provides 25 months of benefits, for example, the continuation rider extends that to 50 months of benefits. Here's a breakdown of the continuation rider's benefits:
- doubles the LTC rider benefit for long-term care assistance
- continues payments for long-term care expenses after the policy's entire death benefit has been fully accelerated
- adds a residual death benefit equal to the lesser of $25,000 or 10% of the initial total face amount after the entire death benefit has been fully accelerated
How Much Does the Rider Cost?
Let's look at an example. In this example, we'll look at Protection UL, John Hancock's least expensive product.
Policy + Rider Cost
- 55 year-old male
- Preferred non-smoker health class
- $1,000,000 policy
- Full pay
- Annual premium without rider: $10,914
- Annual premium with rider: $11,630
- Annual rider cost: $716
John Hancock created a composite average of approximately six companies' guaranteed UL products with no rider: - and the annual premium clocked in at $11,983. By comparison, the Protection UL with LTC Rider costs less. Keep in mind, the Protection UL product is not guaranteed to last for the client's whole life - it's guaranteed for life expectancy. It's still a great option for clients looking for a lower-priced policy.
Case Study: Your Client Needs an Affordable Option
Protection UL with the LTC Riders Combination of Life & Long-Term Care
The product used in this example is the Protection UL, which is John Hancock's most popular product. It offers a guaranteed life expectancy (around 82) and builds cash value. It also has a fairly low premium, making this a best-of-both-worlds type of policy. They use this product frequently with their LTC rider.
- 55-year-old female
- Preferred health class
- $750,000 policy
- 10-pay option
- Added LTC Rider at 2%
- Added Continuation Rider
- 10 annual premiums of $19,222
- Total payments: $192,220
- Client has $750,000 of life insurance
- Client has $15,000/month for 100 months of LTC coverage
- Client has $25,000 residual death benefit if she uses the entire death benefit for LTC
Case Study: Your Client Wants to Accumulate Cash
Accumulation VUL with the LTC Rider
- 45 year-old male
- Preferred non-smoker health class
- $2,000,000 policy
- 20-year non-MEC funding, CVAT
- Added LTC Rider at 2%
- Premiums without LTC rider: $48,725
- Premiums with LTC rider: $49,667
- Difference: 1.9%
- Annual distribution without LTC rider: $177,881
- Annual distribution with LTC rider: $175,265
- Difference: -1.5%
You can see another scenario for a guaranteed VUL product in the video.
LTC Riders: Sales Opportunities
- Policy reviews can present a great opportunity. If your client has a policy that's 5-10 years old, you can probably get them a little bigger death benefit for a little less premium, and add LTC. Emphasize the value of the rider for a very small cost.
- When presenting permanent insurance and client wants to "shop around"
- When presenting individual LTC and the client expresses concern that they may never receive a benefit from the policy
- When addressing a grandparent's wish to leave a benefit for their heirs...while also not burdening their adult children with long-term care responsibilities or cost
Alternate Product: LifeCare
There's another John Hancock product that may help clients in need of LTC and in a particular financial situation. Think of the LifeCare product as John Hancock's version of a MoneyGuard-type product. It's a single premium guaranteed product that offers guaranteed cash value and LTC benefits. It can be very
powerful in certain situations. Let's see it in action:
- 60 year-old female
- $200,000 in savings account (emergency fund, not needed for living expenses)
- Savings account earns less than .5% interest
- Use half of the client's emergency fund - $100,000
- Buy single-premium LifeCare product
- $100,000 buys $421,000 of long-term care insurance
- Cash value grows on a guaranteed basis
- After 20 years, she'd have about $120,000 - $124,000
- LTC benefits: $8,784/month or $105,000/year
- Death benefit: $210,000, if LTC benefits are never used
- Client changes her mind? She can get all her money back.
- Changes her mind within first 6 months: gets all her money back
- Changes her mind within first 3 years (after first 6 months): gets all her money back, minus a small surrender charge of approx. 2 - 3%
- Changes her mind after first 3 years: gets all her money back
If this client had kept that $100,000 in her savings account, how long would it have taken to grow to $210,000? More years than any of us have. That's what makes this product such an easy sale. It makes a lot of sense for the right client who doesn't believe in traditional long-term care because of the "use it or lose it" factor. If the client in this example never uses the LTC benefits, she still gets a $210,000 death benefit. If she does need LTC, she gets $421,000 worth of benefits.
You can do a 1035 exchange into this product. Take an old whole life product, for example, where the client doesn't need its $50,000 cash value. Do a 1035 exchange and put it into this product to get the LTC coverage they need.
The Application Process: Overview
The Application Process: Specifics
- The whole thing can be done, paid, and issued within 7 days
- No medical exam
- 90-day elimination period
- Claims move into John Hancock's main LTC claims support center
- Reimbursement model
- Prequalifying questionnaire consisting of 6-7 "knockout" questions. If a client answers yes to any of them, he or she probably won't qualify.
- Complete the application
- Interview preparation. Use John Hancock-provided materials to go over the questions that will be asked (the names of their medications, for example)
- Phone interview consisting of approximately 45 minutes with an underwriter
That's it! After the phone interview is complete, there will be a decision made within a couple of days. The policy will be issued and paid, and all of it can be wrapped up within 7 days.
Why John Hancock?
John Hancock has a great deal of LTC experience. They sell traditional stand-alone policies, which gives them the experience and contacts other carriers may not be able to offer. For example, they've arranged discounts at facilities nationwide, including discounts for care coordinators and counseling. When your client has a claim, that claim is handled by the same folks who handle claims for the traditional LTC policies. If you're pitching LTC or LTC riders to clients, John Hancock has strong financial ratings and experience to back them up.
We hope you learned a lot about LTC riders! For illustrations and questions, click here to email our Brokerage Sales Support team