Filed Under:Health Insurance, Ltci

Explaining LTC need by the numbers

Q: Convincing prospects of the need for LTC insurance is difficult. Can you provide some approaches to respond to this objection?

A: There are several ways to overcome this objection. Kathleen Smith, an agent in Mt. Juliet, Tenn., shares her approach to how she handled two sets of prospects.

Couple #1: Kathleen prepared a quote for Kim, 57, and Connie, 59, and sent the illustration with this explanation:
* The combined annual premium for you both is $3,213. A $65,000 CD earning 5 percent will generate enough interest to make the annual premium payment-- keeping the principle intact.

Using the attached 3-year illustration, for Kim the breakeven point after paying premiums for 30 years (to age 89) would be 82 days of care/benefits. For Connie the breakeven point after 32 years (to age 90) of premium payments would be 71 days.

If you don't purchase the insurance and did need care, the local average daily cost of care is $150 per day. Assuming a 5 percent annual increase in costs, that equates to $617.42 per day in 30 years (ages 86 and 90).

Couple #2: This quote was sent to Tom, 58, and Carolyn, 55, a wealthy couple who were considering self insuring. Her letter explained: * Assuming you were both "average" in your needs and began receiving care at age 85 and costs only increased by 5 percent per year between now and age 85, the total out-of- pocket expenses would be:

Tom $495,788 ($617.42 x 2.2 yrs)
Carolyn $685,986 ($507.95 x 3.7 yrs)
Total $1,181,774

These are the questions you should consider:

1. What assets will be liquidated to pay for care?
2. What are the tax consequences of liquidating those assets? a) Will you lose the "stepped up at death" tax benefit? b) Will you need to liquidate an additional 25 percent to 40 percent in assets to pay the income tax and capital gains tax on investments sold?
3. What if we are in another bear market and stocks/bonds are down 20 percent when you need to sell?

If you don't purchase the insurance and neither one of you ever needed care, will the $2,700 a year you saved really make a difference when the inheritance is divided among your loved ones? Will the extra money make a significant difference in anyone's life?

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