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Call today: 720.344.0312 Recent LTC Articles Making LTCI More Affordable Advisor Today July 2003 By Wilma G. Anderson Your client says he has no money to buy LTCI. Here are some places to find it. While everyone would like to have long term care insurance, many people say, “I can’t afford it.” That’s understandable, because LTCI is expensive. A typical benefit package - $200 per day for up to three years after a 100-day elimination period, with inflation protection – on average costs about $2,200 per year at age 60 and $4,450 at age 70. What many people don’t realize is, it can be more expensive not to have it. Despite the cost, most people who think they can’t afford LTCI actually can. As the advisor, you must identify a plan that fits the client’s budget and then find the money to pay for it. Find the Need To do this, you need to know how much money and income the prospect has to work with. One way to find out is to ask him, “If a nursing home costs $4,000 per month, how long would your savings last before you’d need to sell your home to pay for nursing home care?” If the answer is about three-and-a-half years, that translates to about $170,000. Then ask him what interest rate he is earning. Let’s say it’s 5 percent, which translates into $8,500 each year. Now you must find a policy with a premium that’s equal to a portion of the client’s interest earnings, as most retirees need at least some of their interest for living expenses. Now you can compare premiums on different benefit packages. While a lifetime benefit is the best, statistics show that most people don’t need long term care for more than three years; so choosing a limited benefit period is a viable way to save money. Give the prospects quotes for two policies that offer an unlimited benefit and those offering a two – or three – year benefit period. Customize the Policy Another way to save money for applicants who are in their 70s and those who are older is to omit inflation protection. This is a reasonable choice because those applicants will most likely use their benefits within a few years. However, with younger applicants, I always recommend buying inflation protection. It’s too risky for the client (and the agent) to try to guess what long term care might cost 20 or more years from now. Also unwise is to try to save money by using a lower-rated company. Lower benefits and longer elimination periods also save money. However, if the client chooses a benefit that’s unlikely to cover the full cost of care, it’s wise to set up a health fund he can use to partially self-insure the cost of care. With the money saved on lower premiums, the client can invest in a fixed or variable deferred annuity. I don’t like immediate annuities because they lock the client into a fairly low interest rate. Deferred annuities are much more flexible, and in case of a medical emergency, the client can always withdraw money without penalty. Show Me the Money Once you and your client have at least tentatively agreed on a budget for LTCI, you now need to find the money for it. By repositioning the client’s assets so that they work harder and produce more after-tax income, you can find funding. Some clients have money they don’t realize they could use. For instance, people with substantial assets in annuities may not think about tapping those funds. Most annuities however let you withdraw up to 10 percent of assets each year without penalty. You client can use annual withdrawals to pay LTCI premiums while the remaining money continues to grow tax deferred. And, if the annuity is a mediocre performer, you can do the client a favor by recommending exchanging it for a better one. Newer single-premium life policies that provide both a death benefit and living benefits for long-term care are another great solution that you should be aware of. Ask the client if he owns any paid-up life insurance. If so, the policy can be exchanged tax free under the IRC Sec. 1035 rule for a multipurpose life policy. Clients like this because they will never get a premium notice. A wise advisor considers the cost of care and the client’s available resources, then finds a policy that is right for that particular client. I’ve often spoken to people who were shown by another agent only a Cadillac policy they couldn’t afford. When I show them a policy they can afford, they buy it. Be Creative People aren’t aware of all the options they have when buying and funding LTCI. Knowing all the strategies and choices available makes you more valuable to your client. Be creative. When your client sees that you have his best interests at heart, you’ll find that the LTCI sale is just the beginning of a mutually rewarding relationship. Click here to return to list

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