11 Tips On LTCi As Rates Rise
Ann Marsh |
The cost of long-term care insurance rose by 8.6% compared to a year ago, but that isn't likely to dissuade advisors' commitment to using it for clients. That's according to
"It doesn’t really alter the advice. If a client needs it, they need it," says planner
To get a sense of the cost increase, consider that a healthy 55-year-old man can expect to pay
The trade group's members include insurance agents and financial advisors.
As the cost of the policies increases, here are steps to consider when advising clients, according to Stiles, Slome and planner
- Put the cost of coverage into perspective.
The average annual cost for a year in a nursing home in
- Don't try to offset all costs of long-term care.
"We are not looking at policies that would cover all costs if a client required a long-term care facility," says Stiles, who takes a more strategic approach to shopping for coverage. "The idea is to get a policy that would offset some of the costs and not leave their spouse destitute after they run through all their money." Most clients have other assets they can rely on to fill in any gaps left by their policies.
- Consider employer policies.
"The larger the corporation, the more likely there are long-term care options out there," Stiles says, but make sure they are portable. "If not, usually we say, 'Let's not buy this.'"
- Buy in the sweet spot.
Clients should start shopping for policies in their mid-fifties, but not earlier, Stiles says. "Our analysis finds that, any earlier than that, you don't really get a benefit on premium deduction," she adds. After age 80, clients generally are no longer eligible for a policy.
- Shop around.
The prices and kinds of policies vary constantly, Stiles says. At certain times of the year, she has found insurers are looking to sell more policies and drop the prices. It pays to research, she says.
- Give your clients options.
Pacific Life offers a policy that allows clients to pay a lump sum of
- Negotiate with insurers.
Many clients are still paying on high-cost "Cadillac" policies they bought years ago that offer unlimited coverage on certain expenses and have cost-of-living riders that now greatly outpace the growth in the markets, Stiles says. Often, the planner finds she can negotiate with insurers on behalf of those clients to drop some excess benefits and reduce the inflation adjustment.
In the case of one elderly couple, "we were able to drop their payment from
In this case, she felt confident making the change, especially given that the couple had other assets that could help if needed.
- Consider hybrid life insurance and long-term care policies.
Planners increasingly prefer to sell policies that combine the two benefits, Slome says.
"You are trading a smaller life insurance benefit for the opportunity to get longer long-term care. It's just a different way of slicing and dicing the issue," he says. "Let's say you buy a life insurance policy that, if you don't ever need long-term care, you will die and so it will leave your beneficiaries with a life insurance benefit. If you do, however, need long-term care before you die, you are going to start drawing the policy down to where you've used up all the benefit, and then it will trigger an accelerated rider that will extend the benefit."- Go with 30- or 60-day elimination periods.
Stiles used to advise her clients to buy policies with 90-day elimination periods, which means the benefits paid out by the policy would begin only 90 days after the client first started paying for long-term care. The only problem is that some clients' illnesses don't last long.
"I had a client that should have used it but didn't want to," Stiles says. "She was allowing her husband to take care of her." Diagnosed in April several years ago, she died that June before receiving any benefit from her policy.
- Address the disconnect.
Oftentimes married couples think they are on the same page about long-term care when they are not, Jarvis finds. "What's really fascinating is we'll see a lot of clients say, 'Oh, honey, I don't want to go into a nursing home. Don't put me there.'" But when asked if they want their spouses to become their caretakers, "They say, ‘Absolutely not. I want them to enjoy their life.'"
- Prepare to teach.
Buying long-term care coverage involves both research on the part of the planner and a lengthy learning curve for the client, Jarvis finds. "It's surprising to folks how much they learn when they visit with us, about themselves and about what great options exist," he says.
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