People are living longer, and with this development comes a greater need for future planning. With this in mind, it’s no surprise long-term care insurance has become a hot topic.
Still, many people are wary of paying for a service they don’t fully understand or believe they need. As a financial professional, it’s your job to help clients weigh the pros and cons of LTC insurance and determine if obtaining a policy is in their best interest.
For many people, the biggest barrier to obtaining LTC insurance is cost. Even high-net-worth individuals may be less than enthused about paying for more insurance, especially if they’re already paying for comprehensive life insurance coverage.
Still others mistakenly believe LTC insurance isn’t necessary thanks to government programs like Medicare.
And finally, there are those who simply refuse to believe they will ever be in a position where they may require day-to-day help with things like bathing, dressing and eating.
Your first course of action is overcoming these obstacles. After all, you can’t help your clients look at the potential advantages and disadvantages of purchasing LTC insurance if they refuse to see the need for it in the first place.
As insurance producers know all too well, the costs associated with LTC coverage are far less than what people would pay for nursing facility care or hiring home health aides without insurance. Producers also know that Medicare only provides LTC services in very specific cases and for limited amounts of time. And finally, professionals are well aware that human life spans are only increasing. In fact, the Social Security Administration most recently stated that 1 in 4 seniors today will live past the age of 90, while 1 in 10 can expect to make it past the age of 95.
The need for some type of planning to handle long-term care is real. It’s your job to illustrate this for skeptical clients.
The pros and cons of LTC insurance
There’s no doubt that this type of coverage can come with a hefty price tag. However, high prices are really the only disadvantage to LTC insurance.
Data from the American Association for Long-Term Care Insurance shows that during 2012, prices for LTC policies rose between 6 percent and 17 percent from 2013.
“Insurance prices have increased as a result of the historic low interest rates and yields on fixed income investments,” Jesse Slome, AALTCI’s executive director, said in a media release.
Your goal should be to put these figures into perspective for your client. For example, the AALTCI stated that a 55-year-old couple buying LTC protection and paying $2,700 per year will enjoy approximately $340,000 of current benefits that will grow to cover $700,000 worth of coverage by the time they turn 80. In short, an investment now can pay off big for LTC coverage down the line.
Additionally, clients should understand how LTC coverage can help them avoid depleting the assets they want to pass on to future generations. Of course, this won’t be much of a selling point for clients who are unattached or who do not plan on leaving an estate for family members.
Finally, helping your clients buy at the right time can go a long way toward lowering their LTC costs. Younger buyers who are in good health will be able to secure lower premiums, ensuring sufficient coverage for the future without a more exorbitant price tag.
Exploring other options
Even if your client refuses to invest in LTC insurance coverage, there are other ways you can help them financially prepare for the future.
For example, permanent life insurance policies can be used to build cash value for use later in life. Additionally, clients can add special riders to these policies that include coverage for things like long-term care.
For clients who are only covered under term life policies, highlighting these benefits can be a great way to get them to switch to permanent coverage.
Another planning strategy you should inform your clients about involves the use of annuities. These products operate like life insurance policies in reverse, with some paying out regular income to policyholders for as long as they’re alive. These funds could be invaluable when it comes to paying for costs associated with long-term care.