The premium payment your client chooses is not likely to be the most important decision he makes when customizing his long-term care insurance policy. And yet, now more than ever, it's important that your clients thoroughly understand their premium options when choosing a policy.
Most LTCI policies fall under the category of "guaranteed renewable." This means the insurance company must renew the policy as long as premiums are paid, regardless of any change in the health of the policyholder. Additionally, the policy language cannot be changed to adversely impact the policyholder.
What can be changed, however, are the premiums — unless the policy states otherwise.
Non-cancelable policies
The term "non-cancelable" applies to policies that are issued with protection against premium increases according to the policy language. Most commonly, policyholders choose the option of paying premiums for life, or until they go on claim and qualify for a premium waiver.
However, most companies offer other premium payment choices, and there are reasons why your clients may choose them. These other options include the following:
- Accelerated premium payments: Many companies allow clients to condense their lifetime payments to a period that can be as short as 10 years.
- Payments over a period of time: Other companies provide variations of this, with options to pay up the premiums at some point in the future, such as at age 65, age 75 or, more recently, even within 20 years.
- One single payment: A small number of companies even offer the ability to make a single payment.
The pros
These accelerated payment schedules always result in a higher premium than your client would have if they paid their premium for life. So what's the appeal? There are two primary factors:
- Your client has a strong desire to get the premiums out of the way as soon as possible, so he or she doesn't have to continue making payments in retirement.
- Your client is eager to avoid premium increases. Most companies that offer accelerated payment options add on a premium guarantee after the policyholder has completed the schedule of premium payments. Prior to all of the accelerated premiums being paid, the policy could still be subject to a premium increase. However, once the accelerated premiums have been paid in full, the added peace of mind can be well worth it. This is especially true since more and more companies have had to resort to increasing premiums on their existing policies.
The cons
In some cases, your client's financial picture and cash flow may not allow for the additional cost of paying premiums over a shorter time frame. Additionally, this is often not a good solution if the client isn't already saving enough for retirement. But if your client is on track for retirement and has the cash flow available to afford one of these accelerated payment approaches, he or she may seriously want to consider this option.
If your client elects an accelerated payment option and then runs into financial difficulty later on, some companies allow the policyholder to switch to paying premiums for life. It's important to keep in mind however, that it's not possible to start with the life payment schedule and then switch to an accelerated payment.
Either way, it's crucial that your clients carefully assess their predicted cash flow through the premium paying years, understand the trade offs and built-in guarantees with accelerated payment options and then make a decision they can live with for the long-term.
Stuart H. Armstrong is a John Hancock Life Insurance Company agent with Centinel Financial Group. He can be reached at 617-424-0005 or [email protected].
