Selling the "cost" of long term care insurance
By Tom Riekse Jr.
The car buying process can be painful. Many times, consumers walk into a dealer with a budget amount in mind -- say $600 per month. However, the last thing they want to hear from an auto sales representative right away is "How much can you afford to pay each month?" Call it price sensitivity.
Likewise, when discussing long term care insurance (LTCI) planning, there are realistic premium outlays that it doesn't make much sense to exceed. Experience suggests that annual premiums greater than 5 percent of an annual income will probably trigger the same price sensitivity.
Instead of focusing on premiums, the conversation should follow three distinct segments:
- First, the client must want to engage in LTCI planning and demonstrate the desire to use insurance to finance some or all of the care.
- Second, begin estimating the cost of future care and designing benefits that will cover the desired exposure.
- The third step is a discussion on how to fund the insurance premiums. Notice, the focus of the conversation to this point hasn't been on a particular carrier or even whether that product has a health-based or life-based chassis. Instead, the focus has been on the problem and how insurance will benefit if it's needed.
Based on a composite of premium quotes from leading carriers, an annual quote for long term care would be about $2,000.
Most advisors would stop there in determining payment options; however, clients might be better served by considering these options, as well:
1) Is the client employed by a company that offers a group plan with similar options? That might be the best choice.
2) Is the client a business owner? There are certain tax advantages to running premiums through an employer group. In addition, C-Corporations have unique opportunities to expense higher premium levels, including accelerated pay plans that pay over 10 years. As an example, the premium for an accelerated pay plan for 10 years would be $5,800 annually.
3) Is the client interested in a single premium? It may be that they want to pre-fund the insurance, or that there is an opportunity to do a 1035 exchange from an existing life or annuity policy, which is now allowed because of the Pension Protection Act. In that case, the premium would be about $50,500.
4) Is the client still paying for college and wants to pay less now and more later? Consider a plan with a graded premium until age 65: Pay $1,724 at an increasing annual premium rate until age 65, and then pay level premiums of $2,317.
5) Is the client concerned about losing premiums paid in? They could pay a single premium deposit of $94,216 in a life/LTCI plan, receive a total of $216,000 in long term care or life insurance benefits, or get money back.
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