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Call today: 720.344.0312 Recent LTC Articles Creative Strategies That Make Long-Term Care Insurance More Affordable Publication: Multiple Risk Management January, 2004 By Wilma G. Anderson While everyone would like to have long-term care (LTC) insurance, many people believe they cannot afford it. That is understandable, because LTC insurance is not inexpensive. A fairly typical benefit package ($200 per day for up to three years after a 100-day elimination period, with inflation protection) costs roughly $2,200 a year at age 60 and increases to $4,450 a year at age 70. However, despite the cost, most people who think they cannot afford insurance actually can afford it. As an adviser, you must find a plan that fits your client’s budget and then help the client find the money to pay for it. To do this, you need to know how much money and income your prospect has with which to work. Ask questions like, “If a nursing home costs $4,000 a month, how long would your savings last before you would need to sell your home?” If the answer is about three-and-a-half years, that means your prospect has about $170,000. Then learn what interest rate he or she is earning on these assets. A 5 percent return, for example, translates into $8,500 in interest annually. Now, find a policy with a premium that is equal to a portion of the interest earnings, because most retirees need at least some of their interest for living expenses. You can compare premiums on different benefit packages. While a lifetime benefit is best, statistics show that most people do not need care for more than three years, so choosing a limited-benefit period is a viable way to save money. Provide quotes for policies that offer an unlimited benefit and those with a two-or-three-year benefit period. Another way to save money for applicants in their 70s or older is to omit inflation protection. This is a reasonable choice because they will most likely use their benefits within a few years. However, with younger applicants, I always recommend buying inflation protection. It is too risky for the client (and the agent) to try to estimate the cost of care 20 or more years from now. Looking to save money by using a lower-rated company is also not recommended. Lower benefit amounts and longer eliminations periods also save money. However, if your client chooses a benefit that is unlikely to cover the fully cost of care, it is wise to set up a health fund that can be used to partially self-insure the cost of care. With the money saved on lower premiums, your client can invest in a deferred annuity, either fixed or variable. I do not like immediate annuities now because they lock the client into a fairly low interest rate. Deferred annuities are much more flexible and, in case of a medical emergency, your client can always withdraw money without penalty. Finding Money, Using Multipurpose Policies Once you and your prospect or client have tentatively agreed on a budget and a plan for LTC insurance, you need to find the money for it. You can find this funding by repositioning the client’s assets so that they work harder and produce more after-tax income. Some clients have money they do not 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 annually without penalty. Annual withdrawals can be used to pay LTC premiums while the remaining money continues to grow tax-deferred. If the annuity is a mediocre performer, you can recommend exchanging it for a better performing annuity. Newer single-premium life policies that provide both a death benefit and a living benefit for long-term care are another potentially great solution of which all advisers should be aware. Ask the client if he or she owns any paid-up life insurance. If so, the policy can be exchanged tax-free under the 1035 rule for a multipurpose life policy. Clients like this because they will never get a premium bill. The wise adviser considers the cost of care and his or her client’s available resources, and finds a policy that fits for that particular client. Often, I have spoken to people who were shown only a “Cadillac” policy they could not afford. When I show them a policy then can afford, they buy it. People are not aware of all the options they have to buy and fund LTC insurance. Knowing all the strategies and choices available makes you more valuable to your client. Be creative! When your new client sees that you have his or her best interests at heart, you will find that the LTC sale is just the beginning of a mutually rewarding relationship. Click here to return to list

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