One of our contributing writers, Ed McCarthy, is working on a long-term care feature for an upcoming print edition of Senior Market Advisor that will help producers sort through the myths about the product. He recently spoke to several LTCI experts to learn their best advice. Following are two of their key points:
1. Combination products aren’t just for health LTCI declines
Combination products, also known as asset-based LTCI, use life insurance and annuities as the foundation for LTC protection. These products have attracted new attention as a result of recent consumer-friendly federal tax legislation and continuing bad news regarding rate increases from health LTCI carriers.
The target market for these products has been clarified over the past decade, and the demographics do not include those who have already been declined for health LTCI coverage. A targeted customer profile for combination products would include someone who:
- Understands the win-win approach: Win if you need LTC benefits and win if you do not. These are clients attracted to the fact they might not need LTC and know their unused dollars are not wasted but, instead, distributed as a death benefit.
- Appreciates the single-premium alternative to LTC funding. Reallocating existing assets is more appealing to retirees than pulling money from their fixed income, which has been shrinking with the current low interest rates. And single premium means no rate increase surprises.
- Is in fair or better health because combination products are medically underwritten.
– Bruce Moon, vice-president, marketing, The State Life Insurance Company
2. LTCI Is Not a Magic Bullet
The single most important thing to understand about LTCI is it does not do what most clients think it does: It does not guarantee to pay the cost of long-term care if the insured needs it. It may or may not be in force if needed, depending on how costly it has become (and make no mistake about it, the premiums will rise quite a bit). If it is in place when needed, the benefits may very well not be enough to cover the costs since even the policies with inflation protection do not increase benefits as rapidly as the cost of long term care increases. Finally, unless the insured has (extremely costly) lifetime benefits, the benefits may not last as long as the need does.
As a result, it is entirely possible that the insured will end up dutifully paying his or her increasing premiums year after year and still end up becoming impoverished by the cost of long-term care and dependent on Medicaid, in which case it is far from clear what was gained from owning LTCI. That does not mean that people should not own it, but they should understand what it is that they are buying–and what it is not.
– David Mendels, CFP(R), Director of Planning, Creative Financial Concepts, LLC