Filed Under:Health Insurance, Ltci

The flexible long-term care plan

Image: FreeDigitalPhotos.net

Image: FreeDigitalPhotos.net

It may not be detectible to everyone quite yet, but there’s a seismic shift happening among consumers and their financial professionals when it comes to preparing for long-term care. If you haven’t looked at asset-based long-term care products lately, now is the time.

The long-term care landscape has changed significantly over the last several years. As financial professionals, we are dealing with rate increases from multiple carriers, with several exiting the marketplace altogether. How we respond to these changes and what we present to our clients is going to have a dramatic impact on our ability to help clients prepare for long-term care going forward. We can either become discouraged with the changes that we see before us or we can take positive steps to shore up our clients’ financial future and our industry as a whole.

See also: Not your Grandpa’s long-term care

The good news in the long-term care industry is that there are still carriers offering products with long-term care benefits that feature unlimited lifetime benefits, abbreviated payment options and premiums that are guaranteed not to increase. If you have never sold asset-based long-term care, now is a good time to take a look at how these products could benefit your clients and get them into your toolbox.

While the primary market for these products has traditionally been the 65–80 age range, I’m having success with clients over a wider age range (50–75). Lately, when clients come to me, the first thing they say is, “I’ve heard about the terrible rate increases. What can be done?” My response is, “Let’s first review your needs, think about where you’d like to receive care, if needed, and talk about your family history.” Only then can I make suitable suggestions.

Often times, I will end up showing a client both a premium-based and an asset-based product. By doing this, the clients know I have shopped the marketplace and, together, we have come up with something suitable for them. Surprisingly, the client often ends up selecting a combination of both types of products.

“It will happen”

This was the case with a couple in their mid-50s that was recently referred to me by their financial professional. For privacy reasons, I’ll refer to them as the “Franklins.” Like many potential clients, recent situations involving members of their own family motivated them to increase their financial protection for later in life. Mrs. Franklin’s mother had Alzheimer’s disease, and Mr. Franklin’s father had suffered from Parkinson’s disease. Both of these parents had required more than five years of long-term care. Because of this, the Franklins were very interested in obtaining unlimited lifetime long-term care protection for themselves.

With so many carriers no longer offering unlimited lifetime protection, our choices were few. But after having worked with asset-based long-term care for many years, I felt it might be a good fit for them. During the initial appointment with the Franklins, I asked a key question as a starting point for these conversations: how would they pay for $100,000 worth of long-term care if it was suddenly needed tomorrow? They mentioned that the bulk of their money was tied up in real estate or retirement accounts. I probed a bit further and found that they had two CDs totaling approximately $150,000 that they had set aside and were not using for income. I asked about the return they were getting on the CDs and found out it was a very low rate. I explained how they could use those assets to not only earn a competitive rate of interest but also provide a tax-free long-term care benefit and a potential death benefit if not needed for long-term care.

Naturally, they were interested in learning more. This is because most people recognize that they are either going to live too long (thus outliving their assets), die too soon (meaning a long-term care product goes to waste) or want/need the money back to pay for care. The asset-based product covers all three of these scenarios. This needs to be part of the conversation with your clients. Traditionally, we would talk to clients about long-term care in terms of “it could happen.” Now we say, “It will happen.”

A flexible approach

The Franklins ended up repositioning $89,000 from their CDs into a joint asset-based long-term care product. This product pays $7,500 per month for qualifying long-term care expenses for up to three years. They also opted to purchase an extension rider, which will give them each $7,500 per month beyond the initial three years for lifetime benefits. The extension rider also contains a 5 percent compound inflation rider. This rider cost the Franklins an additional $3,464 per year and is non-cancelable, meaning the premiums can never be increased. This would give them the unlimited lifetime coverage they desired as well as eliminate the worry that the premiums will become unaffordable when they are in their retirement years.

Here’s where creativity and flexibility pay off. To supplement the base policy, the Franklins also purchased a separate traditional long-term care policy that provided a benefit of $2,000 per month for two years each with a shared care rider. By implementing this strategy of writing two policies, we were able to save them approximately $2,100 per year in premium. Another advantage is that the policy premium with the traditional long-term care carrier is a deductible business expense.

By the end of year 10, the pool of benefits will equal $148,927. If care is not needed until year 25 (age 80), their pool of benefits from the traditional policy will equal $309,609. These benefits are able to be accessed in addition to the asset-based long-term care product during the first three years of care. The extension rider on the asset-based policy will then provide lifetime benefits.

The Franklins’ case study provides just one example of how asset-based long-term care can be used in a variety of scenarios to provide protection based on a client’s needs and wants. Overall, I am also finding these three scenarios are among the most common factors driving a client toward these products:

1)      A client who doesn’t want to buy traditional health-based long-term care products because of the price, limited benefits or uncertainty. Like many, these clients want guarantees. They also like the fact that any unused benefit can be paid to heirs as a death benefit.

2)      People who have been given rate increases on existing traditional LTCI policies. These clients are often able to forego accepting the rate increase, which will reduce benefit levels on their traditional policy, but can make up for any gaps in coverage by complementing that policy with an asset-based policy.

3)      Couples where only one spouse is insurable. We try to write as robust a policy on the healthy spouse as we can, but we need a backup plan for the uninsurable one. In this scenario, if the healthy person passes away, the death benefit could be used to fund care for the surviving spouse.

There are very well-structured and successful asset-based products that have been around more than 20 years, standing the test of time. These products have many useful features, options and variables like contractual guaranteed premiums, unlimited lifetime benefits and premium period options (10-pay, 20-pay). Consumers are becoming more demanding about guarantees and more aware of these alternatives.

As you look ahead to your future as a financial professional, look at how these products can be used in a variety of ways to help you help your clients prepare for their long-term care needs.

All individuals used in all scenarios are fictitious and all numeric examples are hypothetical and were used for explanatory purposes only.


For more on LTCI, see:

Sharpening the focus on a dynamic year for LTCI

Common objections to LTCI hybrids — and how to overcome them

Hybrid LTCI prospects: How to find (and sell!) to them


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