Insurance advisors are typically optimistic with their sales projections for the upcoming year, so those who have experienced a drop-off in long term care insurance sales may consider this only a temporary blip. To these advisors’ positive-thinking minds, baby boomers are only taking a breather before they regroup, open their diminished retirement statements and decide to protect what is left by buying comprehensive LTC insurance.
We all hope that is the case. It may also be prudent, however, to have a plan B, one that addresses a certain consumer distrust of financial services and insurance companies, an unwillingness to spend thousands of dollars on premiums and a paralysis due to the fiscal crisis our country is facing.
What potential ideas would appeal to this plan B consumer? Here are some thoughts.
LTC insurance: 60% off
We are told the best approach for LTC planning is to look at the future cost of care and have a plan that pays for that care regardless of where it is provided or how long it lasts. For example, healthy clients in their early 60s should purchase a plan with unlimited benefits that includes a 5% compound inflation rider and enough monthly benefits to pay for the highest quality Alzheimer’s facility in the country.
The problem is that type of premium is very expensive–about $5,000 annually, in fact. Unless someone really is looking to buy those benefits, it would be difficult to convince that client and their spouse to spend that money. So the outcome may be no action at all. Let’s face it, people are not as prudent with their future as they should be. Notice how the lack of long-term savings contributed to the financial mess we’re in.
If, however, you modified this plan by changing the lifetime benefit period to 3 years, and the compound inflation option to a guaranteed purchase option, the premium becomes closer to $1,500 annually. That may be a price point that is more acceptable to someone looking at LTC insurance.
Granted, the guaranteed-purchase option doesn’t typically qualify as a Partnership policy, if a client is considering buying one, because it does not specifically cover inflation. And over the long term of the policy, someone would probably pay more in premiums than one buying a plan with built-in inflation. However, in the current economic environment, a short-term planning horizon is better than none at all.
A well diversified plan is another option to consider. It’s a fact that two of the biggest selling LTC carriers in the past are now no longer selling new policies. In fact, both carriers have blocks of business that were performing so poorly they needed state government intervention to support the policyholders. These blocks were also subject to large rate increases. Given that, and the fact that we have seen several brand-name financial services companies implode in the blink of an eye, is it any surprise that consumers aren’t convinced a carrier will be there in 30 or 40 years?
A prudent response might be to purchase two LTCI policies. For example, someone could purchase a base reimbursement plan that has built-in inflation coverage and would qualify for many of the state Partnership plans. In addition, he could purchase a cash-benefit plan with no inflation protection. The combined policies could meet the LTC need, and if there is a future rate increase from one policy or a carrier encounters financial difficulties, this wouldn’t have as great an effect as it would on a single-policy LTC plan.
The obvious downside to this plan is that two applications are required, with two underwriting episodes. Additionally, two policies need to be maintained and their bills paid each year. If, however, a client balks at buying both policies, they may still buy the base reimbursement plan.
Buy, don’t rent
A main complaint about LTC insurance is that if you never use it, you lose the money you invested. It is possible to acquire a LTC planning solution with little risk by purchasing an asset-based LTCI product, such as a single-premium life-LTC or annuity-LTC combination plan. Many of these plans offer money-back guarantee provisions, so if a person changes his mind, he can get his investment back. Note, too, that in 2010, provisions of the Pension Protection Act of 2006 will take effect allowing current annuity holders to do a 1035 exchange into an annuity-LTC plan. The tax implications of withdrawals from these plans for LTC needs have also been clarified.
There are many advisors who would be uncomfortable with a less-than-complete LTC solution right off the bat. However, there is a large part of the market that has never purchased a LTC policy or even started planning for LTC. This group needs to begin the process of planning, and one of the approaches discussed here may be advisable.
Regardless of the approach taken, one thing is a must–an annual review of the performance of the chosen plan. Each year, market conditions may change, and the plan must be looked at and further action considered, if necessary. In the end, however, listening to clients’ wants and needs is the most important piece of the puzzle.
Tom Riekse Jr. is managing principal at LTC Insurance Partners L.L.C., Libertyville, Ill., a brokerage general agency. He can be reached at [email protected]