A while back, we received a letter from a reader about an increasingly prevalent piece of long term care insurance advice: that not all clients need a Cadillac plan, and some may be able to make do with less full-featured – and less expensive – policies.
Recently, this reader touched base with us to remind us of his concerns, and for what he sees as a “new marketing” effort that may end up doing the market more harm than good.
Here’s what he had to say in his original letter:
“I really enjoyed the October issue of Agent’s Sales Journal. Thank you and your staff for providing a forum to share information about insurance issues.
“Tom Riekse’s article about designing a long-term care insurance policy ‘for every client’s budget’ was interesting.
“He recommends selling a policy that will pay $4,000 a month, if the actual expense is anticipated to be $6,000 a month, or about 65 percent of actual need, in order to make the sales interview successful and the product more appealing.
“What will the policyholder do if he only has $4,000-a-month policy benefit to pay for their long term care expenses and their real cost is$6,000 a month, or $72,000 a year? That is a difference of $24,000. Let’s assume each month has 30 days. 30 days divided into $6,000 equals $200 a day to spend on long term care expenses.
“If the policyholder only has $4,000 for 30 days = $133.00 a day, what should they do? If they are receiving home care and are lucky enough to find someone to work for $200.00 a day (divided by 24 hours in day = $8.33 an hour), should they receive fewer hours of care? $200 minus $133 = $67divided by 8.33 = eight fewer hours worth of care each day? If this would be possible, which hours would you eliminate? Daytime, or nighttime? The only other option would be to pay the caregiver $5.50 an hour for 24 hours of care a day. Of course, each case would depend on different circumstances.
“In Mr. Riekse’s example, if the policyholder is in an assisted living facility or nursing home, I suppose that they could try and find another home to feed them three meals a day, change diapers, and bathe them, etc., for 10 days each month. If they have been paying $6,000 a month divided by 30 = $200 a day and only have $4,000.00 a month, then they will have to leave the facility for 10 days a month. Maybe the children or grandchildren can take care of them or their church. This may sound extreme, but so does suggesting anyone ‘under-buy’ or ‘budget-buy’ a long term care insurance policy. This type of reasoning defeats the basic purpose of LTCI. Mr. Riekse suggests selling a policy that, by design, may not work at the actual beginning of a claim.
“Today, people understand that they may shift their asset base and receive the same benefits for free. Medicaid planning is becoming more popular because expansion of waivers for home care and assisted living facilities is increasing.