A significant and positive piece of legislation was signed into law by President Bush in early February–the Deficit Reduction Act. This one act will make 2006 and 2007 the strongest years for long term care insurance sales since the late 1990s.
Why am I so confident? Below is a summary of the key provisions and the benefit each has for our industry.
The DRA will:
o Extend the look-back period for all asset transfers from three to five years.
The look-back period refers to limitations imposed by Medicaid on a person’s ability to “impoverish” themselves to qualify for long term care benefits by giving away assets to family members.
Assets transferred during a look-back period are considered in determining the individual’s Medicaid eligibility. Extending this period makes it more difficult for Medicaid planning attorneys to transfer funds out of an individual’s estate so he or she can qualify for welfare.
o Change the start of the penalty period to the date of eligibility, not the date of transfer.
Again, this is a clear indication of how the loopholes on asset transfer are being shut off.
o Any individual with home equity above $500,000 would be ineligible for Medicaid, but the states can raise the threshold as high as $750,000.
Under current law, the value of an individual’s home is not included when determining eligibility for Medicaid. The act would make individuals with more than $500,000 in home equity ineligible for nursing home benefits; states would be able to raise that limit to $750,000. That figure would be adjusted annually for inflation starting in 2011. The prohibition would not apply if an individual’s spouse, minor child or disabled child (regardless of age) lives in the house, and the act would also allow exemptions in the case of hardship.
o Require Medicaid applicants with annuities to name the state as remainder beneficiary.
No longer can annuities be used to “hide” assets from state or federal coffers.
There are a few more important restrictions on income and asset transfer, but I think you get the picture. For an in-depth analysis and specific DRA language, go to the Congressional Budget Office website, Document Link.
One of the most important aspects of the act is the expansion of State Partnership Programs, like those already existing in New York, Connecticut, Indiana and California. Under the DRA, all states are now free to take part in the partnership program, which would allow individuals who purchase certain kinds of LTC insurance to protect much of their assets.
The DRA requires the National Association of Insurance Commissioners to create a uniform standard by Jan. 1, 2007, and all 50 states must agree on the language. Once this occurs, the way in which LTC insurance is viewed by (and marketed to) the general public will dramatically improve. Sales penetration rates in the four partnership states always have been significantly higher than in nonpartnership states. Combine that with all the tax incentives already in place for the self- employed and S corporation and C corporation owners, and LTC insurance will finally become a standard part of financial planning for the middle and upper middle class.
Sending sales through the roof
The average broker in America today still sells–and will continue to sell–one or two LTC policies a year. Why? That can be explained in one word: focus. As the importance of LTC insurance has grown, so has the complexity of the policies. In addition, most brokers who provide financial products are having enough of a challenge keeping up with the changes in SEC regulations, investment options (talk about confusing!), variations in life insurance contracts, estate planning updates and so on to concentrate really on the complex and emotional sale of LTC insurance. The client doesn’t want to talk about it, the advisor doesn’t know enough about the coverage and the underwriting guidelines change with the weather.
So, how can this vital product be provided professionally and ethically to the millions of at-risk baby boomers? The only sensible and effective approach is through what I call strategic partnering.
Most agents who have been successful at providing LTC insurance have focused solely on this complex product and the emotionally charged sales process that accompanies it. Having sold LTC insurance exclusively for more than 15 years, I can attest it has been my passion and focus on this ever-evolving market that led to my success. Had I dabbled in LTC insurance along with life, LTD, annuities and investments, I never could have protected more than 3,500 individual clients from the greatest risk they face.
Years ago, direct mail and seminars were an effective way to generate significant LTC insurance leads. Today, those markets are drying up, just as sales are ready to reach record heights. This ironic dilemma actually makes sense, because the median age of your average LTC insurance purchaser has plummeted. Most new applicants are in the work force, rather than retired or preparing to retire.
As a result, how we reach and market to the future owners of policies must change to mirror buying patterns of our prospects.
Most financial advisors today are building practices filled with boomers. These same advisors are not sufficiently versed in helping clients buy LTC insurance. Therefore, by partnering these advisors with LTC insurance specialists, the potential for serving clients and generating sales far exceeds what each once could ever generate independently.
The LTC insurance specialist needs access to boomers. The advisors need to fulfill fiduciary responsibility and protect the assets they manage. These are two great disciplines that perfectly support one another. The key is bringing them together in a way that benefits all parties involved.
The importance of LTC insurance will continue to grow, as will the options on how to design and underwrite coverage. Therefore, it is in the best interests of all parties–financial advisors, LTC insurance specialists and their clients–to develop trusting and mutually beneficial partnerships. This model will in large part transform the marketing of LTC insurance throughout the years ahead.