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Setting Asset Level Guidelines For LTC Can Be Dangerously Simple

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It happened again. Another well-respected financial journalist gave bad advice about who needs long term care insurance–and, more importantly, who doesnt. This is getting to be a problem.

Heres what was written: If you have less than $500,000 in assets, you cant afford LTC insurance. And, if you have $1 million (single) or $1.5 million (couple), you dont need LTC insurance since you can afford to pay for the care you require.

As if the bad advice in the original publication wasnt damaging enough, I read about the advice in an electronic magazine that regurgitated the bad advice to its subscribers, hailing it as a “particularly important point.”

This kind of thing keeps happening, and it will likely happen again, because consumers love advice like this. It takes a complex topic and makes it simple. Dangerously simple. Theres no mention of whether these numbers include the value of your house. Theres no discussion of how the liquidity of your assets affects the LTC insurance buying decision.

Asset guidelines are dangerous from many points of view. For example, the cost of LTC varies tremendously across the country, making absolute guidelines look silly. A semi-private room in a nursing home varies from $74/day in Tulsa to an average of $321/day in Anchorage (according to the MetLife Mature Market Survey on Nursing Home and Home Care Costs 2002). That means insurance designed to cover this expense would cost more than four times as much in Anchorage than in Tulsa for the same person.

Who says that someone with assets of less than $500,000 cant afford LTC insurance–especially if they live in Tulsa?

The number one question CPAs ask in my training classes is: How much money do people need before they dont need LTC insurance? I usually play devils advocate and say: “Its about the same amount they need to have so they dont need to buy Medicare supplement insurance or homeowners insurance.”

Then I ask, “At what level of wealth would you tell your clients to cancel those other coverages?”

That seems to make the point clear.

In the end, the decision whether or not to purchase LTC insurance boils down to the simple concept of risk management. Although thats not a sexy topic, its important to the financial health of your clients. It entails deciding what financial risks a person is willing to keep on his or her own shoulders and which risks to transfer to an insurance company through purchase of insurance.

So, should someone you know purchase LTC insurance? The answer is, it depends. But the question is not answered just by knowing the persons net worth and marital status. There are other considerations, too, including:

What care options are available to the client, and do these depend on the ability to private-pay for care? Of the options, which does the client want for him/herself?

How does your client feel about liquidating assets to pay for care? What are the tax implications of this? What does the client think about the amount of the estate that may be left (after he or she has paid for care and passed away) for children–or, more importantly, a surviving spouse?

Is it likely–or impossible–that the client could run out of money privately paying for care that lasts many years?

Too often, these questions arent being asked. Instead, consumers are often bombarded with “advice” from well-intentioned but misinformed writers. Every agent who educates his or her clients and community is frustrated by this reality.

The LTC insurance industry is conspicuous in its lack of a savvy, media-based response to educate the public about how to do LTC planning. Agents have shouldered this burden individually. In fact, theyve been the thousand points of light in the darkness.

Its time for LTC insurance companies to bring out the big guns with a major media campaign before it happens again.

Marilee Driscoll, CLU, CSA, is president of The Long Term Care Learning Institute, Plymouth, Mass. Her e-mail address is [email protected]

Reproduced from National Underwriter Life & Health/Financial Services Edition, January 20, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.