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The insurance industry is ignoring the middle class when it comes to long-term care planning.
The annuity/LTC and life/LTC hybrids are great products, if your clients have a spare $100,000 or $200,000 lying around (outside of qualified retirement plans) that they don't know what to do with, but the middle class doesn't.
Besides, when you do the math on these products, if clients only need two years of care, they've used their own money and never gotten into the insurance company's pocket.
Traditional long-term care insurance was super cheap 25 years ago.
Vastly underpriced.
But it's much more expensive now.
Those older policies have had significant price increases to bring premiums up to where they need to be.
The Usual Suspects
So, what's middle America to do?
Ignore the problem until care is needed. Then spend down to $2,000, sell the house and car, and end up on a welfare program called Medicaid?
Who will take clients who are using Medicaid, which pays considerably less than the cost of your client's care?
Nursing homes will, because they accept Medicare for short recovery stays following three days as a hospital inpatient and thus must accept Medicaid as well.
In 2024, the United States lost over 600 nursing homes.
The nursing homes went out of business because of Medicaid's woefully inadequate reimbursement rates.
Short-Term Care Insurance
Enter the new short-term care products.
The issuers offer simplified underwriting, with applications often approved and policies issued in just days, not months, but the policies cover only 12 months of care, either at home or in a facility.
To make up for the short durations, the issuers can offer your client $12,000 to $21,000 for each of those 12 months, effectively giving your client three years to four years of money, not even counting your client's Social Security check.
If your client only uses two years of care, the rest of the money, already in the client's savings account, will pass to the client's heirs.
Service Contracts
Another solution for middle-class clients is a service contract.
A service contract can get your client access to 1,500 hours of home care for a monthly cost of $95.
The issuer will gladly pay your client's friend or neighbor and will ask your client only two questions: Can you live independently now, and can you drive a car?
For $175 per month, the issuer increases the amount of care that can be provided to 3,000 hours.
If your client is already in care, it's not too late.
Annuities
There's a life income annuity that's designed for people who already need help because they have a health problem.
The pricing takes those people's shorter-than-average life expectancy into account.
If, for example, a client's health is such that the client may have only two years to live, compared to a life expectancy of 20 years for the average person the client's age, the client can get a large monthly check for life for a relatively small lump sum.
This can keep the client from having to spend down to Medicaid impoverishment and leave the rest of the client's assets for heirs.
Specialists Needed
Whatever your client's situation, encourage the client to investigate the options with an experienced LTC planning expert, not with a generalist who is afraid even to bring up the topic of long-term LTC and who doesn't have a portfolio of solutions.
There are more solutions each year.
Romeo Raabe, LUTCF, LTCP, is the president of The Long Term Care Guy, a long-term care planning firm in Green Bay, Wisconsin.
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