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April 06, 2008 at 04:00 PM
As 78 million baby boomers prepare for retirement, media attention on long term care insurance has dramatically increased. For many advisors, this presents an ideal opportunity to grow their LTC insurance business and discuss with their clients the importance of this coverage in their comprehensive financial plan.
According to the 2007 MetLife Market Survey of Adult Day Services and Home Care Costs, the average national annual cost for a home health aide is $24,700. The Centers for Medicare and Medicaid Services expect the cost of care to increase three-fold in the next 20 years. LTC insurance can help to prepare for these often unplanned and costly services.
Financial advisors generally understand the protection afforded by LTC insurance. Yet many have felt in the past that LTC insurance was too complicated. They did not want to risk addressing it with their clients for fear of not being able to provide the most appropriate advice. However, certain carriers in the industry have alleviated these concerns by getting back to the basics and simplifying their product offerings.
With that hurdle out of the way, advisors can position themselves as a more valuable resource by presenting LTC insurance as an integral component of securing a successful retirement plan.
Here are 5 tips to keep in mind when approaching LTC insurance with your clients.
1. Expand your target market and reach out to younger boomers. A common belief about LTC insurance is that it is a product primarily for older adults. According to research from the National Alliance for Caregiving and the AARP, however, nearly 40% of adults who need long term care are between the ages of 18 and 64.
Reaching out to a broader age group can help build awareness about LTC insurance and offers clients a cost savings. If clients are in their 40s or 50s, there is a greater chance that they will be in good health and hence insurable. Premiums are also lower the earlier they purchase.
2. Describe the need, don’t sell the features. Your clients may believe that their health insurance, disability, Medicare or Medicaid will cover the cost of care. This is not the case.
Health insurance pays primarily for acute care, and disability insurance is for income replacement.
Medicaid is based on strict income and asset guidelines, and an individual may need to spend down their own assets before becoming eligible. Medicare will generally not pay for personal or custodial care. Medicare is for people age 65 or older and disabled persons. It pays for the first 20 days of care in an approved nursing facility, prescribed by a doctor after a hospital stay. After day 20, the individual pays a daily co-pay up until day 99. After 100 days, Medicare will pay nothing.
Others feel that they can pay privately for future LTC services. This can have significant consequences if they are not educated about the costs of care–forcing retirees to use their savings. In fact, according to the 2004 MetLife Long Term Care IQ Test, 45% of Americans between 40 and 70 underestimated the cost of receiving care in a private room in a nursing home.
In addition, as the cost of care continues to go up, an individual may be forced to spend down personal financial assets, placing retirement savings at risk.
