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March 02, 2005 at 07:00 PM
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.
Potential Costs
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.
