There is no doubt in my mind that the best way to cover the potential risk of needing long-term care (LTC) services in the future is by purchasing long-term care insurance (LTCi). If someone simply is looking to transfer this risk to an insurance company, there is no better way to do this. Not everyone, however, wants to buy LTCi, and plenty of people want it but cannot qualify medically.
What are you doing with your clients who do not want or cannot qualify for LTCi? Are you saying, "Thank you very much," and leaving the house without a sale? A reasonable person will agree that he or she is likely to live a long life and eventually might need LTC. Without a plan to cover these expenses, the consequences to this person's family and finances could be catastrophic. Some people simply are not convinced that LTCi is the proper plan. For these clients, we need to have other solutions.
Your clients will be thankful to you for taking an approach that looks at their needs and wants and provides the proper solution. This will require a shift in the way you think about LTC planning and the way that you conduct your fact finding.
You do not want to open your discussion with a client by trying to sell him or her LTCi. Your clients will be more open to discussing the need for an LTC plan. You should do this because your clients do not want to buy insurance; they want to have a plan.
After you have agreed upon the need for an LTC plan, you then can discuss the different options for funding available to your clients, including LTCi. We build a plan and then figure out how to fund the plan, the same way you would build an estate or business continuation plan and fund it with life insurance.
For those clients who are insurable and want to self-insure the risk, you can recommend a life insurance product that offers LTC benefits when care is needed. This allows your clients to take a portion of their assets and deposit it into a single-premium life insurance policy that will pay LTC benefits if care is needed. If LTC is needed, they can use the death benefits in the policy to pay for their care.
The death benefits in a life insurance policy enable the policyholder to leverage the insurance company's money because a $50,000 deposit might buy a $75,000 to $100,000 death benefit depending upon one's age and health.
If someone requires LTC for an extended period of time and exhausts the death benefit proceeds, there is an option to continue benefits for a defined period of time or a lifetime. If care never is needed, the death benefits are paid income tax-free to a beneficiary upon the insured's death.
This obviously will help to answer the often-heard objection, "What if I pay for this coverage my whole life and never use it?" Other than LTCi, this coverage probably is your client's best alternative to self-funding the entire risk. The insurance carriers underwrite for both the life and LTC risk in these products, so your clients have to be in reasonably good health.
For clients who are uninsurable but do not need care right now, deferred annuities can be used to pay for LTC when it is needed. Not only will a deferred annuity pay benefits from those funds deposited into the annuity, but it also will continue to pay for a client's care even after all of his or her own funds are exhausted for a defined period. These plans even offer lifetime LTC benefits. A separate premium is paid for the insurance benefit.
These products' annuity component works like standard deferred annuities, with your client's investment growing at a fixed rate of interest. The underwriting for these plans usually is much more lenient, requiring no medical records or face-to-face interviews. The underwriting decision is made from the application and a short telephone interview. The annuity application includes a handful of knock-out questions that one normally would see on a standard LTCi application. The knock-out conditions include Alzheimer's, multiple sclerosis, Parkinson's, and a few other diseases.
For those clients who are uninsurable and already are receiving LTC, you can recommend a fairly new product in the market: medically underwritten (impaired risk) annuities. These are innovative products that take into consideration the reduced life expectancy of an uninsurable client that results in a higher income stream or smaller deposit than regular annuities.
For example, if you were working with a 75-year-old client who was diagnosed with Parkinson's disease, the annuity company might rate that client with the life expectancy of an 80-year-old because of the illness. These single-premium immediate annuities (SPIAs) will generate a high monthly stream of income to pay for LTC services.
These products will be attractive to your clients because the higher income stream is guaranteed for life. Consider the marketing opportunities that open up for you when you still can help your client with a solution for LTC even though he or she is uninsurable. A few lead sources for products such as this include nursing homes, continuing care retirement communities, and assisted living facilities.
I often am asked which of these products is the best for LTC planning. There is no simple answer to that question. If your client is insurable and simply wants to transfer the risk of LTC costs to an insurance company, then pure LTCi will work best for him or her. If clients want to self-fund or are uninsurable, however, then an alternative product will work better for them.
For both your insurable and uninsurable clients, the strategy is the same: Take a portion of one's assets and set them aside in a safe investment to pay for LTC if it is needed. These assets will protect the rest of someone's estate from the potentially devastating costs of LTC.
Whether clients use LTCi or some other kind of product, you want to make sure that they have a plan in place for the future need for LTC. As life expectancies continue to increase, so does the probability of needing LTC. Having these other options available only will make you more valuable to your clients and their families. Be an LTC planner, not just an LTC agent!
Tim Kelly is a producer and the vice president of sales for Individual Commercial Brokerage, Inc. (ICB). He manages corporate accounts and trains individual agencies in the sale of LTCi. Mr. Kelly managed the LTC division of a large carrier before coming to ICB. He has educated thousands of consumers and producers on LTC during his career.