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LTCi Awareness Month approaches, as need for care is likely for many

LTCi Awareness Month approaches, as need for care is likely for many

November is Long-Term Care Insurance Awareness Month.

The need for LTCi to pay for long-term care is becoming more critical every day. While the U.S. Department of Health and Human Services estimates that 70% of people turning 65 today will require long-term care at some point, only 17% of respondents to the Insurance Barometer Study conducted by Life Happens and LIMRA say they have individual LTC coverage.

During November, which is Long-Term Care Insurance Awareness Month, financial professionals will share the message with their clients and prospects that getting LTCi can help cover the cost of care when that care is needed the most.

Helping clients and prospects obtain LTCi

So what can agents and advisors do to motivate their clients and prospects to acquire the LTCi they need during LTCi Awareness Month – and long after the campaign is over?
There are the easy-to-motivate prospects and clients, explained Matt Dean, vice president, MarketPlace Group, LTCI Partners, LLC. These prospects have lived through a care event and understand the consequences and how insurance benefits lessen the financial and emotional strain on everyone. Then there are the harder-to-motivate prospects – everyone else.

“The biggest mistake I see in attempts to motivate these clients is the use of statistics,” Dean said. “Dump the statistics. We would have endless interest if statistics worked. Motivating through probability doesn’t work. Motivating through ‘impact’ works.

“It doesn’t matter the probability if the consequence is big enough,” he said, adding, “It’s why we buy life insurance, even though an untimely death is unlikely. Help them consider the impact a care event has on the people they have invited into their life. This meaningful conversation helps people internalize both the financial and emotional consequences that a care event has on everyone around them.”

Dean offered a suggestion on how agents can start the conversation:

“This topic, left ignored, can disrupt all that you envision for yourself and for your loved ones: your access to quality care in a setting you prefer, the future income for a spouse, and any legacy plans for children or charity. You see, this isn’t just about you. It’s about your spouse, your children, and others impacted by your need for care. The good news is we can review your income and assets and determine if insurance can play a role in minimizing the significant disruption caused by the need for care.”

Ultimately this leads to a meaningful and engaged discussion with the prospect who is now more inclined to act, he added. This is much better than a client who was told, “70% chance you’ll need care.”

Overcoming objections

Even after motivating prospects to act, advisors are sometimes met with objections from them, such as the price of the LTCi policy is too high. Ideally, value and affordability were established with the prospect before he was presented with a quote, said Dean, but despite the advisors’ best efforts, price may be an objection.

The keys to overcoming this objection aren’t through statements of fact and statistics, but through meaningful dialogue about the consequences of needing care, said Dean. He added: “I don’t like to ask clients, “So what are you willing to pay?” If you don’t see the value in something, what price are you willing to pay for it? Price is an issue in the absence of value; therefore, focus on building value and not on chasing an ever-lower quote.”

The conversation with the prospect should sound something like this, advised Dean: “Insurance costs reflect risk, and these premiums reflect the significant financial consequences to you and your family of needing care. Let’s talk about those consequences and then look at the many ways we can balance meaningful benefits that fit your budget.”

The “use it or lose it” objection some prospects have to buying LTCi is another one that is best dealt with pre-emptively, Dean added. The advisor’s conversation prior to the quote should measure costs by the consequences that a care event will have on them and their family.

He said that he tells clients: “I am not suggesting you will need this, and we all hope we never will. As we discussed, the impact of needing care is significant to you and your loved ones, and if it does happen, do you agree that the stakes are high enough and worthy of a plan to minimize that impact?”

 

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com

How to think through the risk of big expenses for long-term care

Opinion: How to think through the risk of big expenses for long-term care

No retirement income plan is complete without a plan for potential long-term care expenses

No retirement income plan is complete without a proper consideration of how to plan most effectively for potential long-term care expenses. However, this matter is often overlooked or avoided.

Many are unwilling to confront the questions and possibilities related to losing their own independence. Psychologically, no one likes thinking about the possibility of being unable to effectively handle the basic activities of daily living. It is a natural response to think this is something that only happens to other people.

The cost of long-term care (LTC) represents perhaps the most severe spending shock that can impact retirees. About half of retirees may be able to make it through retirement without facing even $1 of long-term-care expenses. But at the extreme, long-term-care costs can exceed $1 million. An expensive LTC situation involving years spent in a nursing home could derail an otherwise well-built retirement plan.

A lack of planning can create strains as long-term care expenses deplete household assets, bankrupt a surviving spouse, or add burdens for other family members who may end up making large sacrifices to provide care.

The default long-term-care plan will be to self-fund expenses until assets are depleted and to then transition into Medicaid. But there are other possibilities, including either a traditional long-term-care insurance (LTCI) policy or a hybrid policy combining long-term care with life insurance or annuities.

To better understand the options for long-term-care planning, the overall LTC cost can be defined as:

LTC Cost = LTC Expenses + LTCI Premiums – LTCI Benefits

This equation highlights that the overall cost of funding long-term care comprises the actual expenses for care plus any premiums paid for long-term-care insurance, less any insurance benefits received. For this formula, one may consider Medicaid payments as a type of insurance benefit that reduces out-of-pocket expenses. It is the net out-of-pocket expenses that matter.

Remember, Medicaid helps the poor and comes with its own restrictions and rules. Medicare, the source of health insurance for most people 65 and older, does not pay for long-term care.

Numerous considerations are involved in deciding between self-funding and using insurance. These include age, health, ability to receive help from family or friends without overburdening them, wealth levels and how they may relate to Medicaid qualifications, legacy objectives, risk tolerance related to the financial impact of unknown long-term-care costs, and the costs and benefits of different types of insurance.

This is a lot to consider, and it may be worth discussing these matters with a financial professional and possibly even including other family members in the discussion.

Developing a written plan and sharing it with family members can help to avoid misunderstandings about providing and paying for care. You should also ensure family members know about any funds set aside or any insurance policies designed to support care in case you are incapacitated when care needs arise. You may also want to discuss with your family about ensuring that any insurance premiums get paid to avoid unintentionally lapsing on a policy if cognitive decline begins to set in.

RETIREMENT RESEARCHER MEDIA

How much of a funding reserve is needed for long-term care depends on the types of scenarios you want to be financially equipped to handle in the future: When might a long-term care event happen, how long might it last, what will the out-of-pocket expenses for care be, how much might other budgeted spending drop if long-term care is needed, what is the inflation rate for long-term care as well as the overall price level, and what discount rate will be used to convert future expenses back into the reserve amounts needed today?

Again, these are matters that a financial professional can help you work through.

A silver lining that will help with budgeting for long-term care is that some of the money could come from other expenses falling away when one moves into an institution for care. If you are spending $90,000 on nursing home care, some other expenses in your budget would decline or be covered through the costs of care.

For couples there is the possibility that one spouse requires extended long-term care in an institution, while the other remains at home with a similar overall budget. But if you are projecting prolonged long-term care events for both spouses, at some point there may not be a family home and much of the existing budget could be redirected to long-term care. By redeploying some of the existing budget that way, the need for additional reserves may be less than expected.

Nonetheless, for those who want to plan for the possibility of handling multiple years of living in a nursing home, it may still be necessary to set aside several hundred thousand dollars as reserves to meet this contingency.

Wade D. Pfau is the program director of the Retirement Income Certified Professional program at The American College of Financial Services in King of Prussia, Penn. He is also a principal at RetirementResearcher.com. This is adapted from his book “Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success”.

Retaining a Positive Attitude

This country is in a dour mood in my opinion.  We’ve become a nation of complainers.  This is especially true when we talk about politics.  Starting fights over alleged issues seems to work better for politicians than asking voters to credit them for their achievement. There are so many things we should be grateful for, but we’ve gotten into a bad rut.

If one looks on the negative side of life, there are plenty of problematic issues.  Here’s my top ten, by no means a complete list:

  • President Trump tried to retain power and threatened our democracy;
  • Republicans vs. Democrats is splitting the country in and out of Congress;
  • Putin is a major threat to our world order;
  • Russia’s Ukraine invasion could continue for many months;
  • We are not doing enough to control climate change;
  • Inflation is eating into our standard of living;
  • Our race relations are still terrible;
  • Income inequality is huge and increasing;
  • COVID may be with us permanently;
  • Thousands of Americans are needlessly shot and killed.

There’s a great deal to worry about.  Newspapers, magazines and social media highlight these issues and keep them before our minds.  Technology has made us closer to the world’s problems than we have ever been, and we can witness horrific events.

But before these issues cause you sleepless nights, you should look at the issues that you can feel really good about.  Here’s my top ten, by no means a complete list:

  • We live in the U.S., the greatest country in the world;
  • We have freedom of speech and can advocate for our views;
  • We can do with our lives as we choose;
  • We have the richest and most robust economy in the world;
  • Two great oceans insolate us from wars;
  • Our climate is generally temperate;
  • Our country practices the rule of law;
  • We have freedom of religion;
  • We can eradicate almost all disease and increase our life expectancy.

If you’re feeling burdened by the world’s problems, depress your concerns and lift yourself up with things that make you feel good.  Listen to a beautiful symphony or a terrific rock concert.  Enjoy the beauty of the outdoors and get some healthy exercise.  Get with your family and friends and relax in their company.  Plan to travel to a place which will stimulate you and make you feel good.  Receive uplift from your religion and keep in front of mind all the advantages that God has given you.  Then go out and share your joy with others.

The bottom line is that the issues we can feel really good about dwarf the problematic issues.  We’re lucky as hell, and our mood should be upbeat and positive, not dour.

Louis Brownstone

How to think through the risk of big expenses for long-term care

“No retirement income plan is complete without a plan for potential long-term care expenses” published by MarketWatch 10-27-2021 By Wade D. Pfau

No retirement income plan is complete without a proper consideration of how to plan most effectively for potential long-term care expenses. However, this matter is often overlooked or avoided.

Many are unwilling to confront the questions and possibilities related to losing their own independence. Psychologically, no one likes thinking about the possibility of being unable to effectively handle the basic activities of daily living. It is a natural response to think this is something that only happens to other people.

The cost of long-term care (LTC) represents perhaps the most severe spending shock that can impact retirees. About half of retirees may be able to make it through retirement without facing even $1 of long-term-care expenses. But at the extreme, long-term-care costs can exceed $1 million. An expensive LTC situation involving years spent in a nursing home could derail an otherwise well-built retirement plan.

A lack of planning can create strains as long-term care expenses deplete household assets, bankrupt a surviving spouse, or add burdens for other family members who may end up making large sacrifices to provide care.

The default long-term-care plan will be to self-fund expenses until assets are depleted and to then transition into Medicaid. But there are other possibilities, including either a traditional long-term-care insurance (LTCI) policy or a hybrid policy combining long-term care with life insurance or annuities.

To better understand the options for long-term-care planning, the overall LTC cost can be defined as:

LTC Cost = LTC Expenses + LTCI Premiums – LTCI Benefits

This equation highlights that the overall cost of funding long-term care comprises the actual expenses for care plus any premiums paid for long-term-care insurance, less any insurance benefits received. For this formula, one may consider Medicaid payments as a type of insurance benefit that reduces out-of-pocket expenses. It is the net out-of-pocket expenses that matter.

Remember, Medicaid helps the poor and comes with its own restrictions and rules. Medicare, the source of health insurance for most people 65 and older, does not pay for long-term care.

Numerous considerations are involved in deciding between self-funding and using insurance. These include age, health, ability to receive help from family or friends without overburdening them, wealth levels and how they may relate to Medicaid qualifications, legacy objectives, risk tolerance related to the financial impact of unknown long-term-care costs, and the costs and benefits of different types of insurance.

This is a lot to consider, and it may be worth discussing these matters with a financial professional and possibly even including other family members in the discussion.

Developing a written plan and sharing it with family members can help to avoid misunderstandings about providing and paying for care. You should also ensure family members know about any funds set aside or any insurance policies designed to support care in case you are incapacitated when care needs arise. You may also want to discuss with your family about ensuring that any insurance premiums get paid to avoid unintentionally lapsing on a policy if cognitive decline begins to set in.

RETIREMENT RESEARCHER MEDIA

How much of a funding reserve is needed for long-term care depends on the types of scenarios you want to be financially equipped to handle in the future: When might a long-term care event happen, how long might it last, what will the out-of-pocket expenses for care be, how much might other budgeted spending drop if long-term care is needed, what is the inflation rate for long-term care as well as the overall price level, and what discount rate will be used to convert future expenses back into the reserve amounts needed today?

Again, these are matters that a financial professional can help you work through.

A silver lining that will help with budgeting for long-term care is that some of the money could come from other expenses falling away when one moves into an institution for care. If you are spending $90,000 on nursing home care, some other expenses in your budget would decline or be covered through the costs of care.

For couples there is the possibility that one spouse requires extended long-term care in an institution, while the other remains at home with a similar overall budget. But if you are projecting prolonged long-term care events for both spouses, at some point there may not be a family home and much of the existing budget could be redirected to long-term care. By redeploying some of the existing budget that way, the need for additional reserves may be less than expected.

Nonetheless, for those who want to plan for the possibility of handling multiple years of living in a nursing home, it may still be necessary to set aside several hundred thousand dollars as reserves to meet this contingency.

Wade D. Pfau is the program director of the Retirement Income Certified Professional program at The American College of Financial Services in King of Prussia, Penn. He is also a principal at RetirementResearcher.com. This is adapted from his book “Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success”.

10 Advantages of Hybrid Life Insurance with Long-Term Care

You probably know about hybrid cars. But do you know about about hybrid life insurance?

This coverage combines long-term care and life insurance into one policy. Like hybrid cars, these hybrid policies are increasingly popular. That’s because they have some unique benefits.

How It Works

Most people bought long-term care insurance as a standalone policy in years past. Today, it’s becoming more common to buy the coverage as a policy that also includes life insurance.

The long-term care portion of the policy pays for care if you develop a health condition and need care. Meanwhile, the life insurance portion gives your loved ones financial support if you were to pass away.

You receive the long-term care benefit if you develop a health condition. And your loved ones get the full death benefit if you never use the long-term care benefit.

10 Advantages of a Hybrid Life Insurance Policy

  1. More complete coverage. A hybrid life insurance with long-term care policy lets you—and your loved ones—benefit from two very important coverages.
  2. Easier to get.  The medical underwriting for a hybrid life insurance policy is often more relaxed than for a standalone long-term care insurance policy. In fact, some hybrid policies only have you answer a few health questions.
  3. Flexible payment options. There are two ways to pay for a hybrid life insurance: with a lump sum or with annual payments.
  4. Tax savings. Life insurance payouts to your loved ones aren’t taxed. And premiums paid for long-term term care insurance can sometimes be deducted from your state and federal taxes.
  5. Less time and effort. It’s often easier to research, buy and manage one policy than two separate policies.
  6. Fewer premium hikes. Many people worry about cost. That’s because standalone long-term care policy premiums could increase dramatically. Hybrid policies typically offer more pricing stability.
  7. Possibility of a death benefit. Typically you forfeit the premium dollars you’ve paid for a traditional policy if you never need long-term care. With a hybrid policy, your loved ones receive the full death benefit if you never need long-term care. Some policies even guarantee a small death benefit no matter what.
  8. Option to lock in your premium. Some hybrid life insurance policies let you lock in your premium payments.
  9. Option of a money-back guarantee. Some hybrid policies return the premium paid if you decide you don’t want the policy after a set time.
  10. Ultimate peace of mind. Hybrid life insurance coverage erases worries about potential long-term care costs and helps ensure your family’s financial future. Who doesn’t need that?

Getting Coverage

A licensed insurance professional can help you determine if a hybrid or a standalone policy is the right fit and find one that works with your life and budget⁠.

WHY RATE INCREASES?

There’s a great deal of publicity now about large rate increases on long-term care insurance policies.  Rates are now far higher than they were before the year 2000.  Why has this happened?

The long-term care insurance industry is less than fifty years old, and first grossly underpriced its products for four major reasons.  First, it assumed the high interest rates of the eighties and nineties which would give it high investment returns on the premiums it collected, but interest rates have become very low.  Second it assumed high lapse rates, but lapse rates have been under 1 %, so more policyholders become old and claim benefits on their policies.

Third, claims have been higher and of longer duration than originally thought.  And finally, for these three reasons, regulatory agencies have forced insurance companies to increase their reserves for claims and have insisted the reserves be invested conservatively.

The insurance companies have to seek approval from State departments of insurance for rate increases.  They must justify the need for additional funds to pay claims, not to administer the policies or make a profit.  This as been easy to do for the older underpriced policies, and some of the rate increases have been very substantial.

No one likes these rate increases, and in many cases, they were entirely unexpected when the policies were bought.  Many policyholders still want the protection that long-term care insurance provides.  They don’t want to lapse their policies after paying premium for many years. They have accepted these increases and have kept their policies intact or have reduced benefits to cushion the blow of the rate increases.

With these rate increases, the premiums today are far different than what they were some twenty years ago.  They more accurately reflect current interest rates, lapse rates, claims intensity and reserve requirements.  In addition, insurance commissioners have set rate stabilization guidelines for the industry to follow.

The result is that the rates of today are less likely to have substantial increases, if any.  In addition, there are many products available now where the rates are guaranteed not to increase.  It’s a far more stable suite of products, with a far greater degree of certainty for the buyer.

By Louis H. Brownstone

California Long Term Care Insurance Task Force

The California Long Term Care Insurance Task Force has been established with the support of Governor Newsom to implement a publicly funded long term care program.  This task force has a committee of fifteen members, consisting mostly of California Department of Insurance employees and representatives of caregiving organizations.

The Task Force has now met four times and must report its recommendations by the end of 2022.  It is looking at several programs elsewhere, but the main plan it is discussing is the recently enacted Washington State Cares Act.

The Cares Act will be funded beginning in January through a mandatory payroll tax of .58 % on all W-2 earners in the State.  This will give workers a lifetime benefit of up to $ 36,500, adjusted annually for inflation by Washington’s Consumer Price Index.

The concept in Washington and potentially in California is to provide a small long term care benefit and to encourage citizens to buy wrap-around private long term care insurance.  This would protect citizens and save the state many millions of future Medi-Cal dollars.

In my view, this noble effort got many things right in its design.  It’s a mandatory program.  It is funded by a progressive tax, so that the poor pay very little and the rich do a great deal of the funding.  Its benefits are far-reaching.  It has a seventy-five year vision, and the program can be adjusted to ensure its financial solvency.

However, there have been problems in Washington.  Citizens pushed back, as no one likes to be taxed.  Not all citizens are included and must opt-in.  Those employees who live or retire out of state will have to pay the tax but will not receive benefits.  Washington allowed a brief opt-out period for those who purchased private long term care insurance.  This created panic buying to avoid paying the tax, and the insurance industry was swamped with applications and could not cope with the business activity.

If California uses the Washington Cares Act as its model, which I believe it will, it will attempt to overcome its shortcomings.  Even with improvements, the benefits will be small and will not come close to covering most long term care scenarios.  Hopefully the Task Force will adopt a large marketing plan to recommend private insurance plans as a wrap-around to its public plan.

By Louis H. Brownstone