Most financial advisors avoid selling long term care insurance because they lack the knowledge, training and experience to do so. To effectively sell LTC, advisors must be aware of many issues relating to both health and finance.
Long term care insurance helps pay for extended care, in your home, an assisted-living facility, a hospice facility or a nursing home. From a financial perspective, LTCI is asset protection. If something were to happen to your clients tomorrow, do they have enough dollars to fund the full expense of the care needed? What happens if the money runs out? Whats the impact to their surviving spouse or to the family?
Advances in medicine almost have doubled the average lifespan over the last century. But that increased lifespan means we are more likely to need long term care during our lifetime. Its not a question of if your clients will need LTC insurance, but rather when and for how long.
The most important thing advisors need to understand is that its not how long you live, its how long you live not well, needing care. While you cant predict the future, you can prepare.
Your clients are not likely to need LTC for their entire lifetime. Theyll need it for a few years at some point in the future. Statistics show that people who need LTC in their 60s will need it for four to six years. Those who dont need it until their 70s will need it for two to four years; those younger than 60 will need it six years-plus.
Prospective buyers of long term care insurance might consider a policy thats “short and fat,” one that provides a large daily benefit for four or five years, rather than a policy thats “long and thin” and provides a smaller daily benefit for a lifetime.
A key element is finding the right LTC company for your clients. Nationwide, there are at least 100 companies offering LTCI products, so its vital to identify the right one for your clients needs.
Dont look simply for a brand name company. Rather, ask serious questions. How many LTC policyholders does the company have? What kind of LTC claims experience does it have? How long has it been selling LTC insurance?
You will find that most companies offer policies more favorably priced to married couples, rather than singles. In fact, the best premiums are offered to married couples in good health. But some companies will price their product attractively for single people.
Eligibility requirements for all LTC policies are governed by HIPAA. Each policy has benefits and features. All companies have underwriting guidelines that cover health risks they are willing to accept. You should choose the best company a clients health will allow. Companies will price their products to attract or discourage a certain market segment from applying.
There are four models of long term care:
? Reimbursement. You lay out the expenses and the LTC company pays you back.
? Indemnity. You get cash to pay expenses, but you provide receipts to account for each expense.
? Hybrid. This is a combination of reimbursement and indemnity.
? Cash. No receipts are required and you spend the money as you see fit.
Advisors should understand, and be comfortable explaining to their clients, two important issues: (1) the potential costs of LTC; and (2) the impact to their financial plan by not preparing for this expense.
The cost of LTC services are expected to quadruple by 2030 because the population is aging and yet healthy. Aging baby boomers are living healthier and better. With advances in health care, they will live longer than their parents.
In 2005 there are plenty of younger people to take care of fewer older people. But in 25 years, there will be far more older people who need care, representing a much larger percentage of the population compared to younger people.
The cost of LTC increases an average of 5% annually. So, advisors must be sure their clients are earning enough on their investments to maintain a comfortable lifestyle for the next 25 healthy, active years. And they must be able to cover LTC expenses in the future.
Nursing home costs are the basic yardstick for gauging expenses. In New York, the costs are running $350 to $500 a day, while in Atlanta, the costs are $140 to $180 a day. In California, Phoenix and Tucson, the costs are higher. Louisiana has the lowest in the nation.
Statistics show that many of those needing LTC in nursing homes are bankrupted by the expense. The reason is they are not prepared for the costs. They are basing their plan on todays costs, not future costs. They dont consider what todays dollar will be worth in 25 years.
The issue is similar in some ways to Social Security. In fact, the government is encouraging people to buy LTC insurance, recognizing that there will not be enough tax dollars down the line to pay for everyone who will require care.
Your clients must not expect the government to cover their costs. And you, as their advisor, must work to ensure they have enough coverage when they need it.
Financial Implications. Long term care insurance has several other benefits, including tax benefits, portability and inheritance issues. Keep in mind that as the advisor, you can be held liable if you dont properly advise and manage your clients long term care program.
Tax Benefits. Individuals, small businesses and corporations can deduct varying percentages of their long term care based on limits set by the government. As an advisor, you should be aware of the specifics for each.
Portability. One of the great benefits of LTC is its portability. Most policies are good anywhere in the U.S. Financial advisors should ask their clients where they plan to retire and live out their remaining years.
If clients buy enough coverage to retire in Florida, then move to Boston, they will be seriously underinsured. Be sure you know the costs for every level of care in the area they choose to live.
Finally, some LTC policies will cover you outside the country, but companies have different arrangements on international coverage.
Amy Pollock is a master specialist and partner with LTC Financial Partners, an Atlanta, Ga.-based producer and employee-owned national organization of long term care specialists. You may e-mail her at firstname.lastname@example.org.
Kicker: Fast Facts
LTC Insurance By the Numbers
? 40% of those needing LTC are under 65 and many are younger.
? Older baby boomers are now in their late 50s.
? The 65-plus age group is the fastest growing segment of our population.
? The cost of LTC services will likely quadruple by 2030.
? Two-thirds of those needing LTC in nursing homes will be bankrupted by the expense.
? From 1981 to 2001, personal bankruptcies increased 2,200%, half of which were caused by medical or illness debt.
The most important thing advisors need to understand is that its not how long you live, its how long you live
Reproduced from National Underwriter Edition, March 10, 2005. Copyright 2005 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.