No longer a stand-alone product, but part of the overall retirement strategy
by Jeanette Kugel, CLTC Ms. Kugel is a Long Term Care Specialist with Universal Insurance Service, LLC, in Deerfield Beach, FL. Connect with her by e-mail: Jeanette@uiservices.com. Visit www.uiservices.com.
This article is part of our ongoing LTCi series
Here is an understatement: Long Term Care insurance is very important, especially in today’s world.
With baby boomers starting to come of long term care age, LTCi has assumed its rightful place within a comprehensive retirement planning strategy, serving a key role in the protection of a retirement portfolio.
We spend our lives accruing assets and one long term care episode could potentially devastate an otherwise sound retirement portfolio and diminish its assets within a few years, if not sooner. Naturally, the first type of assets clients will usually turn to would be their liquid assets. Savings accounts, stocks, bonds, IRA’s, and other accounts… would all be depleted.
The next asset source might be their home. They could have the option of taking out a second mortgage, doing a reverse mortgage or selling their home altogether in order to cover the medical costs associated.
Once all of these assets are depleted, Medicaid could come into play. In order to qualify for Medicaid, clients need to spend down their countable assets to $2000, unless they have a Partnership long term care insurance policy or one that is Partnership qualified.
The LTCi Sale
A partnership qualified policy will allow your clients to retain their countable assets up to the bucket of money that they had in a long term care policy prior to claim, and still possibly qualify for Medicaid.
In creating illustrations for advisors, a great tool is the Costs of Care brochure. It is compiled by carriers and is a comprehensive and effective sale-tool that breaks down the costs of care for each state, as well as different levels of care along with a low, middle and high cost range.
This establishes an excellent starting point for the client. From there, the agent and I can design a plan that will fit the client’s premium tolerance as well as give them the best coverage for their particular situation. No two clients are the same, so the “cookie cutter” approach does not fit every client’s needs.
Figuring out which product is the appropriate fit for the client is very important and challenging. There are many factors to consider. Just like no two clients are the same, no two products are the same, whether your client is looking to cover 100% of his or her long term care costs with an insurance policy or just trying to supplement their cost of care for anything above and beyond what they have already planned for.
A higher net-worth client might fare better with a linked benefit product, since they may have ability to pay the linked benefit’s shorter pays or one-time pays whereas an average, middle-income client might have trouble paying the higher premiums of a short pay policy. Therefore, a traditional long term care insurance approach may be more feasible in that instance.
New Products, New Challenges
As the long term care insurance market continues to grow and evolve it is important for consumers to know and understand the new, innovative product neing developed, to help consumers face the challenges of the high expenses associated with long term care needs. Naturally, brokers and insurance agents need to stay on top of these innovations.
While the capability to quote and price long term care insurance options are available on the internet the average consumer may not know all the ins and outs associated with a policy. There are many necessary built-in features and benefits as well as many optional ones that are available. This can be overwhelming for a consumer.
There are many avenues available for consumers to purchase long term care insurance. It can be purchased as an individual, through an association that has a long term care endorsement, or from a group/multilife policy (through an employer). Still, the face-to-face sales and education approach tends to be the most effective way .
Getting long term care through an association or an employer plan could be less expensive for clients (based on health and risk class) because there is the possibility of getting a discount for applying through that employer group or association. Here again, no two clients are alike, so the “cookie cutter” approach isn’t always the best and will not suit everyone’s needs.
The Multi-Life Sale
With a multilife/association discount, the premiums can be discounted anywhere from 5%-15% which could add up to a substantial savings. So, there are many options on how you can offer long term care insurance in an employer group. It can be offered as a carve out, a defined benefit, a completely voluntary plan, or any combination of these options.
In a multilife situation the employer also has the capability to decide, based on certain criteria, who will receive which types of benefits, and who will get all or a portion of their premiums paid for and who will not. This is because in an employer market, these plans are typically discriminatory.
You can base your design on many factors including but not limited to, job title, length of service, payroll, etc, as long as employees in the same job class are all offered the same benefits. There are also option available as to how these policies can be paid such as list bill, payroll deduct and direct bill.
Again, multlife plan designs are flexible and it is best to deal face to face when planning these types of designs. As I mentioned earlier, linked benefit products have their place in long term care planning as well. They are typically built on a universal life chassis, but are long term care driven.
These types of policies give the client a minimal death benefit return over what they deposited into their policy, but give greater long term care benefits.
'Linked Benefit' Benefits
In most cases the linked benefit products have a return of premium feature build into the contract, giving the client an option to either use the benefit for long term care, have the death benefit go to the client’s heirs at the time of the client’s death, or if the need arises and the client needs to surrender the policy after a specified period of time is met, the client will get the greater of the surrender value in the policy or the premium that was deposited into the policy.
Depending on the age of your client, an inflation option may also be available. The payments into these policies are usually single pays, however, clients have the option of paying premiums up to a 10-year premium payment period, allowing the client to spread the premiums over time possibly making it more affordable to purchase more benefits.
These products are not suited for everyone, underlining the advantage of having an advisor present that can assist the client and come up with a plan that is best suited for the client’s needs. One of the upsides to a policy like this is that once the premiums are all paid, the client will have a paid-up policy and be protected from the inforce rate increases that traditional long term care policies have faced.
There are many options and avenues available for consumers to purchase long term care insurance and there are many different products available to meet the needs of all types of consumers. Today, the industry is focused on continuing to find innovative, affordable and creative ways to protect consumers from the high costs associated with long term care expenses.
Just as the needs of consumers change and evolve, so do the long term care product offerings to cover those needs. I think we will continue to see these sorts of innovative ideas and solutions, especially in the upcoming years.