In case you hadn't noticed, the premium for a traditionally designed long-term care insurance (LTCI) policy has finally exceeded the ability of the middle class to pay for it.
(If your target market does not include the middle class, read no further. This article will be of no interest to you. There are plenty of ways for the affluent to transfer the risk of having to pay long-term care costs to an insurance company.)
The problem is still there
The middle class is financially vulnerable to the probability that they will "take too long to die."
Among those people, the most vulnerable are single individuals (women especially), and those that will have to pay for care out of their retirement savings and Social Security.
Statistics don't mean a thing if it happens to you, but the most reliable risk assessment that I have seen documented is this: About one in six of those who live beyond 65 will need two years or more of care for the routine activities of daily life.
On the other hand, that means that five out of six may not experience any estate-crushing long-term care costs. So, how do we as financial and insurance professionals approach this topic realistically and intelligently with our account holders and clients?
People are living longer, but not necessarily better.
A spouse or an adult child will not take out a gun and shoot anyone that needs help getting dressed and bathing.
Having to pay for at least some private care for daily activities before dying is a real possibility. Caregivers will be spouses or adult children.
Beyond family, the cost for private caregiving may be high. Paying for those costs out-of-pocket can deplete investments and savings, and may require the sale of real estate.
There's a way to leverage that risk. That is, one can pay a few dollars now (insurance premiums) for having more dollars available later in case long-term care is needed.
Paying premium against that probability is wise and prudent as long as it can be afforded now and into the retirement years. Adult children should be in on the discussion of insurance if at all possible.
It is very likely that they will be caregivers and have to bear part -- if not all -- of the cost of care beyond what they can provide as far as family caregiving is concerned. Adult children should consider the practicality of helping to pay for long-term care insurance on their parents.
Positioning the solution
- No long-term care insurance policy can promise to cover all of anyone's cost of care. That's always been true, but rarely does a conversation about long-term care insurance include that fact.
- Not everyone can medically qualify for insurance. Candidates for long-term care insurance must be medically prescreened. There's no sense even talking about funding long-term care with an insurance policy if one cannot medically qualify.
- Cost is always a factor. Don't show an illustration. Indicate that "It's not cheap, but it can be designed to meet a budget. Some coverage is better than none."
- Premiums may go up. That's true of all health insurance. However, individual policyholders cannot be singled out.
In cases where the agent strongly doubts that the candidates for insurance can afford "base" coverage (I define base coverage as $100 per day or $3,000 per month), the producer should be prepared to refer the candidates to Medicaid options and advise the person or family to have a plan for taking care of elderly relatives should the need occur.
There are many local senior care service advisors. A good number of them are provided by the states' department of health or the department of aging and are free.
Paying premium on a long-term care insurance policy for several years and then dropping it is a waste of money.
Coverage design for the middle class
- Maximum allowable daily or monthly benefit.
- Two "years" of coverage.
- No riders.
This is sometimes referred to as "fat-short" design. For example, Transamerica's highest daily benefit is $400 per day or $12,000 per month. That creates an available pool of money from which to receive reimbursement of possible care costs of $288,000.
John Hancock's current maximums are $500 per day, $15,000 per month and a pool of $360,000.
Without any inflation rider, will that be enough coverage in 30 years? No one knows. But it's a significant chunk of change and would save the insured a possible $288,000 to $360,000 of out-of-pocket payment for daily home care or facility care.
(Would anyone needing long-term care really think that having an insurance company pay one-third to one-half of the care costs is a "bad deal?" Maybe, but probably not.)
Avoiding expensive automatic benefit increase riders reduces the possibility that the policyowner will experience future increases in premium. The amount of time the pool will last can be extended if the family can take care of the insured until skilled care is needed or a facility becomes absolutely necessary.
If long-term care is needed before expected, the insured has maximum access to the pool of money.
The topic of long-term care cannot be ignored. It must be discussed. The above is a simpler, less costly approach to solving the problem.
One might argue that if any financial professional is aware of a 17 percent risk that might negatively impact the financial well-being of their client, that financial professional has a responsibility to make their clients aware of it and provide an affordable solution. You may now consider yourself responsible.