LTCI: The time is now
By Julie Gelbwaks Gewirtz
Gelbwaks Executive Marketing Corp.
Long term care insurance (LTCI) is an extremely important part of a financial plan in today's marketplace. And while the whole concept of LTCI only just came into being approximately 35 years ago, there are more than 100 companies in the United States that have sold LTC insurance, but only a dozen or so of those actually have a substantial amount of business on the books. The top three companies account for more than 60 percent of all the new business sold in the country today. This is largely due to the combination of the financial strength and overall stability of the carrier, the longevity and penetration in the marketplace, history of rate increases, the product design, rates and underwriting.
When we talk about LTCI, we are referring to an insurance policy that covers your client in a nursing home, assisted living facility, in their own home, adult day care or in many types of community care centers. This insurance is primarily used to fund the care needed if and when an individual becomes disabled and needs long-term custodial care.
Ten important tips when selling LTCI:
1. Choose a company with experience and stability. In today's marketplace, there are many companies offering an LTCI product. Many of the plans are similar, but make sure that the carrier you choose has been in this business for a long enough time to price the product correctly, and understand that claims-paying ability plays the most important part. Also, since this entire industry is very young, it's important to go with a company that has fine-tuned its product line after having been through a number of revisions. These companies have learned from their mistakes. So, you will be more likely to end up selling a "state-of-the-art" plan by choosing a solid carrier.
2. Make sure you understand the difference between reimbursement, indemnity and true cash models and compare premiums for each type. With the reimbursement version, benefits can be reimbursed after submitting bills from qualified caregivers; the policy will pay the full benefit no matter what the amount of the bill is with the indemnity type; and a cash model pays the total dollar amount regardless of bills.
3. Sell before (or just after) your client's birthday. Every year a person waits to buy LTCI could cost them 10 percent to 12 percent in premium. Therefore, the younger they are, the better off they are. Furthermore, many companies will even accept applications up to 30 days after a client's birthday, but still only charge the lower premium amount based on the younger age. The average buyer of individual LTCI in America is approximately 58 years old, depending on the study you read. This has dramatically decreased from ages in the high 70s only a decade ago. In the worksite (employer-sponsored plans), the average age of an LTCI buyer is only 41.
4. Choose a benefit amount that is right for the state your client plans to need care in. We recommend that you choose a daily or monthly amount that is equal to or greater than the average cost of care today in the state where your client lives. But, if they plan to be in another state when they need care, make sure to focus on that state's average instead. If you have a choice between selling a plan that caps the benefit per day or per month, choose monthly. Although it may cost 5 percent to 10 percent more in premium, it adds some much-needed flexibility on the home care side.
5. A five-year benefit period will be just fine for the majority of people. Recent claim studies show that more than 90 percent of all people will have a claim that is five years or less in duration. But, if your client has a family history of lengthy illnesses -- like Alzheimer's -- you may want them to consider lifetime/unlimited plans. Currently, the availability of a lifetime plan is becoming more and more limited every day, so think of selling sooner rather than later while we still have this option.
6. Sell inflation. Building in a good inflation rider is one of the most important choices one can make when selecting an LTCI plan. There are many different varieties, and most of them are seemingly expensive, but they are well worth it in the long-term. A good rule of thumb is that if the prospect is younger than 70 years old, they should choose an inflation rider that automatically increases the benefit amount every year for the rest of their lives -- even while they are on claim.
7. Have them share coverage with a spouse or partner. You can save money and add flexibility to the policy by adding a shared-care rider. This way, either of them can use the true amount needed by pooling resources. If the policy benefits run out for one spouse/partner, they may tap into the benefits of the other if necessary. This is one of the most popular ways to purchase LTCI coverage in America today.
8. Sell first-day home care if it is available as an elimination period choice. An elimination period is a waiting period before plan benefits begin -- similar to a deductible. Many companies now offer an option where you can buy a 90-day facility elimination period, for example, but waive the elimination period for home care. Since most people at least try to receive care at home before ever going into a nursing home, this is an excellent option... especially since most policies will allow the days used at home to credit (or count towards) the days in the facility. So, you get 90-day rates but also first-day coverage -- a great choice for most people.
9. Think about a limited-pay option. Your client can purchase a policy in three primary ways -- the traditional lifetime pay option, where the clients pay premiums every year for the rest of their lives, or the two most common limited-pay options. The first of those is a 10-pay, wherein the client pays once a year for 10 years and is then finished. This typically costs about 2.5 to 3 times more than the lifetime pay premium (but remember; it's completely paid off after the tenth year). The second is the pay to 65 option, where the premium is paid until age 65 and it would then be paid up at that point. Applicants need to be 55 years old or younger for this option. The pay to 65 is a perfect middle ground for a very young buyer who wants to be sure they will be able to afford to keep this policy in retirement, but cannot stretch all the way to a 10-pay option.
10. Talk about a LTCI partnership plan and whether or not it is right for your client. The Deficit Reduction Act of 2005 brought significant opportunity to the LTCI marketplace. We can now offer products that allow for a possible "asset disregard" when applying to Medicaid. Protecting retirement assets is one of the most common reasons for buying LTCI, so purchasing a partnership-qualified policy enhances that benefit by allowing your client to earmark a specific dollar amount that can be protected through Medicaid Asset Protection.
*For further information, or to contact this author, please leave a comment and your e-mail address in the forum below.