COVID Linked-Benefit Opportunity

Written by Claude Thau

April 29, 2020

More than ever in my life, I fear a major depression, because of COVID. Many restaurants won’t re-open; some had marginal profitability even before COVID. Retail stores with inventory already faced tough competition from the internet; now more buyers have bought more things over the internet, and previously-valued face-to-face interaction is less cherished. Movie theaters are endangered. More virtual meetings could benefit productivity and the environment, but not the travel industry. Thus, commercial real estate may be stressed. Unemployment can lead to other unemployment. Mortgage delinquencies threaten residential real estate, banks and other lenders.

Many of us fear further stock market sell-offs and a long road to recovery. Converting to bonds is scary with low yields and government printing unprecedented amounts of money. Real estate/mortgages do not seem to be a safe harbor. Commodities are risky if the economy stalls.

Clients may feel more physically vulnerable as well as more financially vulnerable. Linked-benefit life insurance/LTCi (LB) is very attractive now, so attractive that insurers are scrambling to cut back on issue ages above 70 and raise pricing (Effective May 8th, Nationwide will raise CareMatters II prices for ages 40-65 by 10% for single pay, 8% for multi-year pay, less for lifetime pay; with higher increases at younger ages, with no compounding or with vested return of premium, etc.)
1. Many LB policies are guaranteed. Getting a guaranteed product before a price increase is a significant service that clients may appreciate.
2. The death benefit replenishes some of the client’s estate that has withered in the recent stock market.
3. LB products also protect against LTC needs. Go to to see these videos: “Self-Insuring Your LTC Risk (3.5 minutes)” and “Why Buy Now?” (5 minute)
4. Maximum LTC benefits can compound at 3% or, for the same cost, according to a medical cost index1. To me, the medical cost index is a no-brainer.
5. Benefits can be paid to (out-of-work, perhaps) family members who provide care1.
6. LB policies can do well in any economic environment. In a deflationary economy such as the 1930s, the increasing benefit is further leveraged by reduced cost of care. In an inflationary economy, a medical cost index helps. In a gyrating muddle economy, steady performance is appreciated.
7. The tax advantages for employer-paid coverage may increase in the future, as the USA grapples with spiraling debt2.

This may be a good time to re-visit with some clients who did not establish a LTC plan, perhaps using the videos in #3 above. Reassure/compliment clients who purchased such coverage (from you or someone else); they may like to purchase more or may have family or friends interested in your help. Below my signature block, I’ve included a view of this situation from a planning perspective.

1 Not available in CA, DE, MT, NY, PR and VI, but we have other alternatives. The “Medical Care Component of the Consumer Price Index for All Urban Consumers, Unadjusted” determines compounding which is credited triennially (annually while on claim) with a floor of 0%. Any single year’s factor is capped at 6%. Benefits are always at least as great as would have resulted from 2% compounding each year since issue).

2 Please note that I am not an advisor relative to either tax or legal issues. I share my understanding of laws solely to help your client determine whether tax or other legal issues might be significant to a decision regarding LTCi. If such issues are significant, then your client should rely on the advice of a tax or legal professional.

— Claude Thau

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