“Lately, the only consistent aspect of the long-term care market is change, and in recent years we are seeing that change occur with increasing frequency. One of the most significant changes has been in how we talk with clients about long-term care.”
Looking back to a time when clients were able to afford the cost of fully insuring their long-term care with relatively low premiums, the process was quick, applications were short, and underwriting was somewhat lenient. Fast-forward 15 years and the number of carriers offering LTC insurance has shrunk, premiums are substantially higher, and underwriting is as challenging as ever.
Today, clients are more educated than before. But oftentimes they’re not as informed as they should be about long-term care insurance. This is where one of the greatest opportunities lies in your relationship with them as their trusted advisor. The goal should not be to convince them to purchase long-term care insurance, but instead to work with them to design and fund a comprehensive long-term care plan. Gone are the days of showing a client long-term care policy benefits of $200 per day — along with lifetime benefits, 5% compound inflation protection — and hearing the client say, “Looks good, where do I sign?” But that doesn’t mean the conversation about long-term care is over.
When designing any LTC plan, it’s important first to understand that long-term care is NOT a place. It’s an event. Even after all these years, clients still believe long-term care means going into a nursing home, which is why they are usually reluctant to discuss it. When clients are asked if they believe the possibility of getting sick and needing care increases with age, they will typically say, “Yes!” So it is important to raise awareness of what long-term care really means, but that is just the beginning of the process.
As we build out the plan, we also must remember that every client is different. And since no two clients are alike, every plan will be different. One of the most important factors in designing your client’s individualized plan is having a clear understanding of how much the client is willing to set aside for this part of the plan.
Long-term care insurance continues to be a great solution for funding the plan — either in whole or in part — and today there are more options than there were even as recently as five years ago. Among some of the newer solutions available today are linked-benefit plans. As the name implies, linked-benefit plans combine, or “link together,” long-term care benefits with life insurance or an annuity. Within this category of solutions, however, there are a variety of options.
One popular linked-benefit option is what is often referred to as an asset-based solution. This model is essentially a life insurance contract with long-term care benefits attached to it; however, the focus is on the long-term care with the life insurance as an added benefit. This may be used when a client feels they can afford to self-fund and have available cash in reserves. This solution works best with a single pay premium, but there are also flexible payment options available, as well as an increasing number of flex pay options.
A similar option is a life insurance contract with a long-term care rider. This allows clients to have access to a death benefit at a set percentage per month if they qualify for care. Be advised, however, that all contracts are not created equal. Make sure you and the client understand the qualifications to receive benefits, as some of these contracts may have different rules.
Perhaps the most overlooked opportunity is a linked-benefit annuity. This product leverages a non-qualified annuity for long-term care. Utilizing a non-qualified annuity for tax-free long-term care benefits may be one of the best-kept secrets in the market today. Given the opportunity, most clients would be more than willing to turn a tax-deferred gain into a tax-free benefit leveraged two to five times.
With all the options for funding a long-term care plan, it is important to educate clients and work with them to design an intentional long-term care plan as part of their comprehensive financial plan. Take the first step by starting the conversation. Then listen, and find a partner who can help you craft a custom solution.