Pac Life’s New SPL Policy for LTC–Good or Bad?
The biggest worry of SENIOR clients is covering the costs of LTC (long-term care) in retirement. Traditional LTC insurance is too expensive for most so they self-insure. One not well known solution to pay for LTC expenses is SPL (Single Premium Life).
This newsletter will compare the NEW Pac Life SPL policy to two other better policies (one with a “lifetime” benefit).
To learn more about either of the BETTER POLICIES, click on the following link:
What is SPL for LTC? It’s really simple; it’s a single premium*life policy that pays a portion of the death benefit EARLY (tax-free) if there are LTC expenses.
How does an insured qualify for the accelerated payments for LTC expenses?
Like a traditional LTC policy, an insured who can’t perform two of their six ADLs (activities of daily living) will qualify for benefits. ADLs are (click here to read more about ADLs):
Bathing; Dressing; Eating; Transferring; Toileting; Continence
The best way to compare products is to go through an example. I’m actually going to compare three products: Pac Life’s new product to two other companies.
Example—let’s take a 65-year old with a $100,000 premium (money that may be sitting idle in a savings or other low-yielding investments). This example has a 5% inflation rider and a 90-day elimination period (typical terms).
- $100,000 death benefit (it stays at $100k for the life of the policy)
- LTC Benefit (72 months)
$3,036 a month at age 65 (total benefit w/inflation rider = $247,827)
$6,312 a month at age 80 (total benefit w/inflation rider = $515,215)
- Cash surrender value = $100,000 (it has a return of premium option)
- $99,767 initial death benefit ($100k at ages 72 and beyond)
- LTC Benefit (72 months)
$3,466 a month at age 65 (total benefit w/inflation rider = $282,904)
$7,206 a month at age 80 (total benefit w/inflation rider = $588,137)
- Cash surrender value = $80,000 in year one and then $100k at age 70
Company #2 has a 14.5% higher benefit (not good for Pac Life)
Most SPL policies have the following limitations:
- Limited benefit period (like six years)
- Single premium (no ability to fund it annually)*
- Single life only
What if the client still needs care after six month? Too bad; they will have to deplete other assets to pay for their care. What if the client doesn’t have $100,000 initial premium? Too bad; you need to save and wait or buy a policy with much lower benefits. What if you have a married couple? They’d have to buy separate policies with separate premiums.
Company #3—this company offers an SPL policy with an UNLIMTED benefit period, annual funding*, and a joint life option. It is my favorite SPL policy. The numbers below are for an unlimited benefit option.
- $73,178 death benefit for the life of the policy (it’s designed for LTC not DB).
- LTC Benefit
$2,927 a month at age 65 for an UNLIMITED period of time.
$4,541 a month at age 70 for an UNLIMITED period of time.
$5,796 a month at age 80 for an UNLIMITED period of time.
- Cash surrender value = $35,700 at age 65 or $51,861 at age 80
What if someone goes on claim at age 75 and stays on claim for 10 years?
$316,297 (total Pac Life benefit)
$361,065 (total Company #2 benefit)
$563,892 (total Company #3 benefit)
Company #3’s policy is for people who want to protect themselves against needing long term care for an extended period of time. Statistics show that people with Alzheimer’s can live with the disease from 8 to 20 years. Statistics also show that over 40% of all long term claims are related to organic brain disorders like Alzheimer’s Parkinson’s senility and dementia.
What about underwriting? Most SPL policies designed for LTC have simplified underwriting. A client does a phone interview and if they answer the questions wrong, they are declined out of hand. Company #3 will actually look at a client’s medical records. That means many more clients will make it through underwriting (so, more clients will get insurance and more agents will get paid).
Summary—I get that Pac Life feels the need to be in the SPL space, but their product doesn’t match up.
If you want a policy that offers an UNLIMTED lifetime benefit option as well as a flexible premium option and a joint life option with a spouse, Pac life AND all the other companies in the marketplace lose.
If you do not know these products, you need to learn them. They are the most viable tools today to provide clients with an insurance option to help pay for LTC expenses (tough to be a fiduciary without knowing these products).
Roccy DeFrancesco, JD, CAPP, CMP
Founder, The Wealth Preservation Institute
Co-Founder, The Asset Protection Society