Recognizing the pressing need to increase long-term care insurance sales, our focus has turned away from “the date” that brought many of us to the dance. Bright shiny objects such as linked, hybrid and combo products, while adding to the consumer’s long-term care planning choices, has also created a bit of a muddle. The desire to sell “less to more” may be a great concept and the right thing to do, but the prolonged economic non-recovery and the increasing dollars sucked up by the Affordable Care Act have shoved aside the notion that middle-class consumers can squeeze another $100 per month for LTCi out of their budgets.
One thing that 39 years in the insurance business has taught me, is that we tend to forget what worked for us in the past. We get so wound up in the latest new product or untested sales idea that we stop talking to the right clients about tried and true solutions that work for them. As I look back on our past successes, the one that stands out is the 10-pay corporate carve-out sale for owners of small companies. In an environment of increased income taxes, what better way can a business man or woman protect their personal assets with tax-deductible premiums and tax-free benefits?
Now I grant you, this is not a mass-market sales idea. But if you have business-owner clients who are still making money, you know they are looking for tax-deductible ways to plan for their future. The good news is: you have a great way to help your clients do just that, and you don’t need many of these sales to make a significant impact on your bottom line.
Here’s what I’m talking about.
The most important metric to consider when presenting this option is:
How many years of annual premium does the total 10-pay premium equal?
For example, when Susan and I purchased our first 10-pay policy with Allianz in 1997, the total 10-pay premium equaled 19 years of annual premium. When we purchased our second policy with State Life in 2003, the equivalency was 23 years of annual premium. In the latter case (adjusting for benefits and age) we paid approximately $90,000 in 10-pay premiums from 2003 through 2012. If we had done this on an annual “forever-pay” basis the premium would be approximately $4,000 annually. I’m pleased to say that both of these were smart purchases. We now have more long-term care insurance than we’ll ever need, and the value of it increases every year because of the automatic benefit inflation option. And, our premiums will never increase because our policies are paid up.
In the mid-to-late 2000s, a number of companies jumped into the 10-pay arena, but they weren’t serious about selling much because total 10-pay premiums were equal to about 35 years of annual premium. So what happened? We stopped presenting them because the numbers didn’t make sense. We moved on to other ideas and failed to pay much attention to limited-pay policies. However, new developments make it highly desirable to reconsider the 10-pay option.
LifeSecure, one of our top traditional long-term care insurance companies, continues to offer a 10-pay option, and for the right client, total 10-pay premiums equals about 25 years of annual premium.
Here’s an example:
- Couple 57 & 52
- $6,000/month benefit each
- Two $600,0000 pools of money + shared care benefit
- 3% automatic compound inflation
- 90 calendar day elimination period
- Standard Rate Class
- Annual “forever-pay” premium = $6,060
- Annual 10-Pay premium = $15,096
- Total of 10-pay premiums = $150,960
- Equivalent to 24.91 years of annual premiums
It’s important to note that the 10-pay premiums can increase during first 10 years of the policy, but after that the insureds are out of the premium-paying woods. The value of their monthly benefits and their pools of money continue to automatically increase by 3% compound annually for the life of their policies. If they own a business, they’ve paid the premiums from it, so all or part of the payments are tax deductible. Oh, and did I mention that the benefits when received are tax-free?
How would I present this idea to the client?
First I’d show the annual pay premium and get them to agree on the value proposition of what you’re proposing. Don’t forget to take along our Pool of Money presentations that shows they can’t invest their way out of the problem. Then as a final option, present the 10-pay premiums as perhaps a smarter way to go. Discuss the benefits and see what they say; you may be pleasantly surprised.
Now consider this:
Many small businesses have multiple owners who are struggling with paying higher marginal tax rates on income. If they convert some of that income to an executive employee fringe benefit, they would save on their taxes and protect their personal assets.
One more thing:
LifeSecure does not reduce the first-year commission when the 10-pay option is chosen. Renewals are reduced, however if you compare the total 10-pay vs. annual pay commission payout for the first 10 years of the policy the 10-pay beats the annual pay by 20%.
The conclusion is that for right client, the 10-pay premium option is a time-value of money winner for them and you.