I Still Believe in Long-Term Care Insurance

Too good to fail?

by Phyllis Shelton

Every time a company exits the long-term care insurance industry, the naysayers rear their ugly heads and point their fingers as if to say “We told you it wouldn’t work…we told you it would fail.”

This type of nonproductive advice is very familiar to me. I heard it many times when I transitioned to long-term care insurance in 1988 after a decade of being a marketing executive for Blue Cross Blue Shield.

People just couldn’t understand why I would go from a corner office of the “gold building”** in Chattanooga, TN to beating the streets as a long-term care insurance agent.

Making a difference…

But I wanted to make a difference. I couldn’t do that as one cog in the wheel of a huge corporation.

Suze Orman asked me recently if I still consider it wise for people to get long-term care insurance. Here’s my answer:

I think the people who get long-term care insurance will be very, very lucky Suze. It’s a contract after all and the insurance company has to pay the claim regardless of whether they are still selling new policies. Also, I’m seeing a lot more activity with hybrid (combo) plans that combine either life insurance or annuities with LTC.

The attraction is to “get something back” if care is never needed. It’s a lot of denial in my opinion but that’s the big deal. However, it’s so important to consider inflation and my fear is that most people don’t.

As I’ve shared many times, the formula is the same. Rather than say, “Give me $100,000 and I’ll give you $300,000 (or more) for LTC”, we need to:

• Ask where clients think they will retire; and
• Multiply the cost of a really nice assisted living facility in that area by 5% compound for 20 or 30 years (depending on the clients’ age) and figure out how much it will take to generate that much monthly benefit at that time.

This formula will result in a lot of home care as home care is growing much more slowly – more like 2% instead of 5%. If nursing home care is needed as a last resort, the client can self-fund the difference. If there isn’t enough money to pay the difference, if you sold a Partnership policy, the client can turn to Medicaid and retain savings equal to the benefits paid out.

Create your own combo…

Lately, I’ve been creating my own version of a combo. Figure out the premium for the traditional plan they need, then figure out the lump sum it will take to pay the premium from a fixed index annuity, using the free withdrawal feature so the client never loses control of his/her principal.

This is a much more cost effective way to pay the premium. The amount it takes to do this usually means in 20 years, they will have significantly more than they put in, even though they have withdrawn the money to pay the LTCi premium for 20 years. Another advantage to doing it this way instead of with a single premium immediate annuity is that it leaves room for a rate increase. I run the illustration with about $500 more a year anyway so that taking out less than that for the actual premium stores up more in the future to handle a rate increase. This works thanks to the magic of deferred taxation instead of paying tax on the gain every year with CDs, money market funds, or investments.

Thanks to free enterprise, there are a lot of different ways to pay for LTC today, with and without underwriting.

• Traditional long-term care insurance that works like health insurance (use it or lose it)
• Traditional long-term care insurance with limited underwriting in the workplace (where we need to be selling it!)
• Combination of life insurance or annuities with LTC benefits (still requires underwriting)
• Equity-index annuities with limited underwriting (qualified or non-qualified)
• Equity-index annuities with LTC benefits with no underwriting (qualified or non-qualified)
• Converting term life insurance into LTC benefits with no underwriting
• Reverse mortgages and how to work with the non-cross selling law
• Short-term care with limited underwriting for people with low assets
• Selling home care services to people who don’t qualify for LTC insurance

And there’s more . . .

How to find money to pay for LTC insurance by paying less than $50 a month for Medicare supplement that limits out of pocket expenses to about $2200. (FYI, the average out-of-pocket for Medicare Advantage plans will be $5,200 a year in 2016.)1

• How to successfully do internet selling, including technology tips
• How to make a 90% rate increase look great!
• The latest research on claims to help guide clients on benefit duration
• What the NAIC is doing about rate increases

The Long Term Care Insurance market has changed. Many traditional LTCI carriers have left, rates have climbed, underwriting has tightened, new products have evolved and many financial service professionals are confused by all these changes. But the great news is that there are alternatives to selling just traditional LTCI policies.

See ‘Phyllis Shelton’s Success Selling Techniques, for the new LTCi market.’ Visit here.

** The Blue Cross Blue Shield of Tennessee building was all gold glass, meaning people could see out but not in.