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Helping The Non-Wealthy Boomer Pay For LTC Insurance

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Boomer clients are increasingly seeing that they need to provide for long term care in their senior years, but that does not automatically translate into a sale of long term care insurance, many experts agree. The producer may need to show the individual how they can afford coverage.

“Retirement is still going to be the client’s number one concern,” says John W. Wheeler, a financial planner with Country Insurance and Financial Services, Carol Stream, Ill. “Boomers are not known as being savers. But statistically, they are going to live many years. If they can face the long term care issue earlier rather than later, it’s going to be better.”

“My emphasis is to get people to buy policies when they are in their late 40s or early 50s,” says Mark Gebhardt, president of Commercial Markets Insurance Companies Inc., St. Mary, Fla. “With older people, the ability to qualify is a problem.”

“Good health discounts are available when you are in good health,” David Hillelsohn points out to clients. “The opportunity diminishes when you get older.”

That approach can be effective, because people love to think they are getting a discount, notes Hillelsohn, who is brokerage manager for the Haslett Management Group Inc., Reston, Va.

Gebhardt adds that the advent of health savings accounts has made LTC insurance more affordable for many.

HSAs became tax-deductible with the passage of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. This allows individuals to exclude contributions to the accounts from taxable income, including cash set aside for long term care insurance premiums.

Gebhardt notes that his home state of Florida recently made it mandatory for employers based in the state to make HSA plans available to employees, opening up the opportunity for more sales to LTC producers there.

He favors using HSAs in combination with limited-pay LTC policies, which are paid up after a specific number of payments, such as 20.

For older boomer clients, Chuck Eberle, president of American Insurnet Agency, Cincinnati, likes to tie LTC insurance to their retirement savings by using part of the income from those savings to pay LTC premiums.

“I tell a client, ‘You will make 5.5% instead of 6% from your investments because you are setting aside part of it for long term care,” says Eberle.

Where there is a legitimate hardship, Eberle looks for lower cost alternatives that provide some protection of assets in the client’s retirement years.

“If they can’t buy lifetime benefits, I suggest a plan that pays for 2 or 4 years. Very often, that’s all they would need, anyway,” he says.

Or rather than offering them a policy with a compound cost-of-living adjustment feature, he’ll show them one with a higher level of daily benefits–$130, for example, instead of $100. That builds in some inflation protection, at less cost than a typical COLA rider, he explains.

Ray Dobbie, president, Dobbie Insurance Agency, Wellesley, Mass., proposes starting with a review of the client’s existing life insurance.

“They may have bought a whole life policy 20 years ago, and since then new fee-based policies have come out that can save them money,” he says. “They may be able to transfer their current policy to a new fee-based policy that could free up money for an LTC policy.”

Another alternative: Sell the life policy in the form of a life settlement, then use part of that income stream to buy LTC insurance. Many times, the client can get more by selling the policy than by surrendering it for its cash value, Dobbie notes.

Extending the waiting period to qualify for benefits also can help keep it affordable, he adds.

He does not, however, think it’s advisable to extend the waiting period beyond 90 days. “The reduction in premiums by extending it to 180 days doesn’t reduce the premium that much to make it worthwhile,” he says.

Other cost-adding features that most clients can do without are survivorship and restoration of benefits, he adds.

Bob Miller, an agent with LTC Financial Partners, Kirkland, Wash., cautions that if it’s such a hardship financially for a client, then coverage may not make sense.

“Work with the client to make sure long term care insurance fits the situation,” he advises.

Where a boomer may have trouble paying premiums after retirement, choose a plan that lets them accelerate payments for the first 5 or 10 years, while they are still working, and then pay a lower amount after that, Miller advises.

On the other hand, if the individual is going to be making $4,000 or more a month after retirement, they probably can afford to pay some of those expenses out of pocket, he adds.

“If they could expect to pay $250 a day for care, maybe they can handle $50 or $75, thus keeping payments lower,” Miller says.

In general, it makes sense to look at what he calls “short, fat policies”–policies with high daily benefit amounts but relatively short coverage periods, such as $200 a day in benefits for 3 or 4 years, he believes.

Eberle says the art of financing LTC insurance doesn’t involve fancy financial tricks. “If they don’t have the money, they don’t,” he says.

But often, the same person who says he can’t afford LTC insurance can somehow find the money to treat himself to a luxury car or a big-screen TV, Eberle notes. So the producer shouldn’t automatically take the poverty plea at face value.

“People usually have the money,” he says. “It’s how they allocate it that’s the issue.”


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