Senior Market Advisor. January 2005. www.SeniorMarketAdvisor.com

LTCI Insider. With Margie Barrie.

Optimize benefits and minimize premiums

I recently heard a speaker at a LTC conference talk about a different approach to calculating a daily benefit — by working backwards from the amount that would be needed at time of claim. I like the concept because it looks to the future — when a person is most likely to require care — and makes sure a policy provides needed dollars at time of claim. Can you provide more information on that concept?
-— E.H., Rockville, Md.

THIS METHOD for calculating the daily benefit comes from Gail Holubinka, vice president of business development LTC, MedAmerica Insurance Co. She suggests agents calculate the amount of dollars the client will need at the probable time of claim and then, using that figure, determine the current benefit amount to be recommended. This optimizes benefits while minimizing premiums — getting the client to his target amount in the most costeffective way. It also clearly illustrates the value of the inflation benefit. Holubinka calls her method "Back From The Future." Here’s how it works:

STEP 1: HOW MUCH WILL THE CLIENT REQUIRE?
Holubinka calculates the future monthly LTC expense. She bases this on the following assumptions: The client will need care at age 80, the current LTC monthly expense is $6,000 and the average inflation is 5 percent, compounded annually. She determines the LTC target amount by increasing the $6,000 figure each year by 5 percent of the prior year’s amount. She does this for the total number of years necessary to reach age 80. For example, a 45-year-old will need $33,000 per month, a 55-year-old needs $20,000 per month, a 65-year-old needs $12,600 per month and a 70-year-old requires $9,600 per month.

STEP 2: COST EFFECTIVE WAYS TO REACH THAT AMOUNT
Holubinka calculates and compares the premiums based on the various inflation options offered by a company’s LTC policy.

Consider these calculations for a 55- year-old client. For this example, Holubinka has based the annual premiums on a policy for 36 months with 80 percent community care, a 90-day elimination period, married applicant, two purchasers and a standard rate. Age 80 is the anticipated age for a claim. At age 80, the client will need $20,000; this becomes the LTC target. If the client selects no inflation benefit, the monthly benefit purchased will be $20,000 with a premium of $2,061. With simple inflation, the original monthly benefit should total $9,000 per month. With compound inflation, the benefit will be $6,000 per month.

When premiums are calculated based on the various monthly benefits, it becomes easier to determine which inflation option is the best value for your client.

MARGIE BARRIE IS PRESIDENT OF LTCI CONSULTING GROUP INC., WHERE SHE SPECIALIZES IN PROVIDING MARKETING AND SALES SOLUTIONS TO THE LONG TERM CARE INSURANCE INDUSTRY. SHE CAN BE REACHED AT (410) 653-9600 OR AT MARGIEBARRIE@COMCAST.NET.