Usage of a Par Whole Life for T65 Med Supp Sale

[sshafran]

I've been doing some thinking on my approach to helping seniors with Med Supps. Most of my clients want fairly comprehensive coverage, and most of them see the logic of not buying F & enrolling in Plan G. The only problem with this recommendation is that we do have a Part B deductible risk - it has the potential to skyrocket (even though it went down this year).

For those who want less comprehensive coverage or for those who don't necessarily ask for advice, my goal is to help them get what they want & educate them on the pros and cons of whatever plan they decide on.

Anyway, I've been thinking about a possible different approach to Med Supps. I'd like feedback - is this a foolish idea? Plausible? Is it a great idea? How would you tweak it?

Someone once said on the forum that the point of insurance is to minimize risk and hopefully leverage our money. I think this type of plan has the potential to do it, but at this stage in my career I'm hesitant to recommend something like this without getting input from others.

Here are the facts that have led me to this idea. (Columbus, OH)
1. Current average Plan F for Female 65 is $1770
2. Current average Plan Hi-F for Female 65 is $607

3. Current average Plan F for Female 87 is $2938
4. Current average Plan Hi-F for Female 87 is $1079

Being an independent agent, we can normally do better than "Average." But, it is what it is.

In a few years, I would guess the average Plan F @65 will be closer to $2,000. We are all well-aware of the rate increases on Med Supps. Average at 87 will be closer to $3200.


Thinking long-term, my "best guess" is that a Hi-F will save most of my clients approximately $1,500 in premium per year over the life of their policies.

For my healthy T65 clients who also have life insurance needs/wants, I'm thinking about proposing this as an alternative to my typical "Plan G" + FE recommendation.

Purchase Hi-F - This will guarantee that their OOP will not go above $2,000. My guess is that most will not hit the $2,000 limit for the majority of years that they are on Medicare. Is this consistent with your clients/prospects on Hi-F?

Secondly, place $2,000 into an ON Prestige Max life ins contract ($27,500 Face). The premium is paid for 10 years. Guaranteed CV builds quickly ($3200 @ 68), dividends (not guaranteed) are also in the picture. Between year 7 & 8, the CV grows by $2,000 per year - guaranteed. Every year after that, the CV grow more than their premium payments. The idea is that if they do incur a year with high medical costs, that they can use their CV through a loan.

Most of them will hopefully stay fairly health for another few years, after which their CV will be decent. At age 73, their CV is guaranteed at $12,660.

It seems to me that this is a MUCH better & more efficient approach than selling them a Plan G. It's way better than G + a Final Expense policy.

The benefits, as I see it, are many. And, I think that if I were 65 and healthy, that I might do something like this.

What are your thoughts?

 

[Todd King]

You're saying you currently use a plan G as your model, yet you are not saying what those premiums are. Seems you might would compare this to plan G instead of plan F.

One could go on to say that you could save them even more money by putting them into an MAPD plan and sell an even higher ON plan. That's just another way of looking at the same scenario.

 

[RonRoberts]

sshafran - Do you place many with ON?

One could go on to say that you could save them even more money by putting them into an MAPD plan and sell an even higher ON plan. That's just another way of looking at the same scenario.

Todd,

Who do you recommend for MAPD?

 

[ksigmtsu]

Normally, if you look at the premium vs maximum risk the N makes the most sense.

I've never seen a situation in which the High F saved more than 20 or 30 dollars a month over the N, and there is a 1800 dollar difference in the deductible for 240 dollars in savings.

 

[SportsNut]

You might be a better salesman than most... or at least you have sold yourself on this concept.

Let me sort out what you are saying, for me and for those on my level... The highlights seem to be:

1) Concern over that skyrocketing Part B deductible... (currently $ 140 in 12'... if it goes up 3% a yr it will have skyrocketed all the way up to $ 218 in 15 yrs; or to $ 291 if compounded at 5% over the 15yrs).

2) The same folks who are worried about this skyrocketing Part B ded, aren't worried about absorbing a 2K oop with High ded Plan F.

3) You plan to essentially buy term and invest the diff (on their supp $$$) for them into a par WL contract that will have run away cv increases that will out perform the risks of both 1 and 2 above.

4) What happens to the plan if they get sick in yr 2 and thereafter and suffer the fate of 2K oop annually with the high ded Plan F...? Where does the par WL prem come from then...?

If I have the description close above... then I don't think that I have met a client yet that would be a taker of the risks associated with this approach... But if you can make it work, you are a better salesman than most... I would just question where you place the value here, on risk avoidance for the client or elsewhere..? Most of these folks wish to avoid the risk of high oop costs... so they buy a supp, based on what I see everyday, anyway.

I agree with Todd in the sense... if they are seeking to avoid premiums they opt for MAPD. People buying MAPD aren't going to pony up any type of life premium like you are referring to above. If prem is secondary to avoiding risk then they opt for Plan D, F or G and some with N. High ded F's usually have the resources yielding higher returns than anything offered in a par WL... and paying the 2K oop is of no consequence to them. I just don't see the clients that would be a taker of your described plan, it seems.

Just can't see it...

 

[GreenSky]

This doesn't seem too much different than a Med Supp with an automatic approval for a FE policy. LHL used to do this when they still were writing Med Supps.

Rick

 

[sshafran]

You're saying you currently use a plan G as your model, yet you are not saying what those premiums are. Seems you might would compare this to plan G instead of plan F.

I used Plan F for simplicity. Any combination could be compared - I've sold Plan N, Plan K, Plan L, Plan G, Plan D, and Plan F. Ironically, I've never sold a Hi-Deductible Plan F. For Plan G in OH, subtract about $20-25 MP.

One could go on to say that you could save them even more money by putting them into an MAPD plan and sell an even higher ON plan. That's just another way of looking at the same scenario.

True, and this would be much more profitable . The problem is that there are no long-term guarantees. Sure, there is an OOP max, but what will 2013 hold? For those who don't care about long-term guarantees - I'll give them what they want and let them know the pros & cons.
- - - - - - - - - - - - - - - - - -

You might be a better salesman than most... or at least you have sold yourself on this concept.

I think that I made it clear that I have not sold myself on the concept. I've thought it through a bit and I'd like feedback - on the surface it seems possible - and potentially better. It's worth exploring.

In fact, I think it would be more difficult to sell because it has more moving parts. But just because it's more difficult doesn't mean that I couldn't propose it if it is a good idea for a prospect.

Let me sort out what you are saying, for me and for those on my level... The highlights seem to be:

1) Concern over that skyrocketing Part B deductible... (currently $ 140 in 12'... if it goes up 3% a yr it will have skyrocketed all the way up to $ 218 in 15 yrs; or to $ 291 if compounded at 5% over the 15yrs).

2) The same folks who are worried about this skyrocketing Part B ded, aren't worried about absorbing a 2K oop with High ded Plan F.

I overstated the Part B deductible "risk." I'm not really concerned about it - and most of my clients aren't either. But technically, a Hi-F has a hard Max OOP. A Plan G & N do not have hard Max OOP. Mid last year there were rumors of the B Deductible going up to $500 - which is political suicide. Again, I'm not worried about it.

3) You plan to essentially buy term and invest the diff (on their supp $$$) for them into a par WL contract that will have run away cv increases that will out perform the risks of both 1 and 2 above.

I don't like BTID, obviously. I think it's closer to the High Deductible Major Medical plan with an HSA idea than it is to the BTID idea. Create a maximum tolerable risk (in this case, $2,000), and leverage your money to eventually meet the risk. Just like starting out an HSA - in the beginning you may only have $1,000 in there, but in the long run it can be a great tool. We can't forget the value of the added death benefit & the flexibility that they will have with their CV if they stay healthy.

Especially for those prospects who do have savings in the bank - this can work well for them.

4) What happens to the plan if they get sick in yr 2 and thereafter and suffer the fate of 2K oop annually with the high ded Plan F...? Where does the par WL prem come from then...?

Obviously, this idea isn't for someone on food stamps. They would need to be ready to meet their deductible from day one from other assets, knowing it will not exceed $2,000 yearly.

If I have the description close above... then I don't think that I have met a client yet that would be a taker of the risks associated with this approach... But if you can make it work, you are a better salesman than most... I would just question where you place the value here, on risk avoidance for the client or elsewhere..? Most of these folks wish to avoid the risk of high oop costs... so they buy a supp, based on what I see everyday, anyway.

I agree with Todd in the sense... if they are seeking to avoid premiums they opt for MAPD. People buying MAPD aren't going to pony up any type of life premium like you are referring to above. If prem is secondary to avoiding risk then they opt for Plan D, F or G and some with N. High ded F's usually have the resources yielding higher returns than anything offered in a par WL... and paying the 2K oop is of no consequence to them. I just don't see the clients that would be a taker of your described plan, it seems.

Just can't see it...

This is what bothers me about the way I've been doing it. Allow me to play Devil's advocate...and run some real life numbers.

Male, 72, non-smoker, Columbus, quoting lowest premium on Ritter.

Option A: Purchase a Hi-F for $357 per year. You are Guaranteed to have an OOP expense of $357 per year. You have the Potential to spend up to $2,357 per year.
Option A - total risk: $2,000

Option B: Purchase a Plan G for $1387 per year. You are Guaranteed to have an OOP expense of $1,387 per year. You have the Potential to spend up to $1,527 per year.
Option B - Total Minimum Guaranteed Extra OOP costs: $1030 The difference is likely higher as most do not have the lowest med supp price out there - often for good reason.

So, would you spend $1030 per year to cover a $2,000 risk per year? Our 72 yr. old is doing this very thing.

If your home were worth $200,000, would you spend $103,000 in homeowners insurance? Bad analogy - but it makes me think.

I've gotten off topic - but sometimes it seems like the extra $1030 isn't worth it as most of my clients don't seem to use their policies to the max.

Thanks for the feedback - I don't plan on backing off from selling Plan G, but I'd like to get more feedback. This may be a better idea for to propose to a current life client who will be new to Medicare.

 

[G.Gordon]

Actuaries that have a much deeper understanding, education, and insight in this matter have not brought this concept to market. Thus, I say it is not a viable market conceptl


Sure, you can talk a few into this situation, but over the long run... it doesn't hold water in the consumer's mind.

IMO... it generates more income for the agent, that is the catalyst behind this idea.

 

[RonRoberts]

I believe the whole point behind the OP is to stimulate creative thinking. Just because I may think something may be in the best interest of the client (while being good for my pocket book) does not mean that I am only thinking about my best interests. I wish we had more posts on this type of reasoning because I helps newbies like myself rationally think out different scenarios that I may not otherwise think about.

sshafran keep the posts coming. Also, do you write much ON?

Ron

 

[tins]

I believe the whole point behind the OP is to stimulate creative thinking. Just because I may think something may be in the best interest of the client (while being good for my pocket book) does not mean that I am only thinking about my best interests. I wish we had more posts on this type of reasoning because I helps newbies like myself rationally think out different scenarios that I may not otherwise think about.

sshafran keep the posts coming. Also, do you write much ON?

Ron

Just my opinion, but I think newbies would be better off by keeping it simple.
Sell Med Supps as health insurance.
Sell FE as life insurance.
No need to sell health insurance that doesn't have great coverage even if you have a life linsurance plan to fill in for the health insurance if needed. Once you start making things more complicated, for the seniors, than they need to be- the next agent that comes and simplifies everything will end up taking your client.
Newbies: Work hard and keep it simple. You will be successful.