Long term care (LTC) can be a costly expense, and many people are not prepared for it. Depending on where your clients live, the cost of a private room in a nursing home is over $12,000 per month.
There are several funding options available for LTC, but not all of them are created equal. In this blog post, we will explore some of the most popular LTC funding options, including:
- Traditional long term care insurance
- Hybrid products
- Life insurance riders
We will also discuss the reasons why people might not purchase traditional long term care insurance, and how to educate your clients about the need for LTC protection.
Traditional Long Term Care Insurance
Several years ago, traditional LTC products were the most common LTC option, in fact it was the only option. There were several carrier choices and product designs. Fast forwarding to today, we only have 1 primary carrier, Mutual of Omaha. They have learned a lot over the last decade, mostly what NOT to do, and how to price their products more effectively.
Your client’s most likely have read articles about the never-ending rate increases for existing LTC policies. This is 100% accurate and something with deal with often. There are 2 main reasons for these increases; 1. Incorrect pricing model based on Life insurance lapse rates. 2. Interest rate environment vs the guaranteed inflation rate that most clients added to their plans. Long Term Care policies have a lapse rate of less than 1%, and these carriers did not anticipate that every policy would still be on the books at claim time. They also could not anticipate the artificially low interest rates for 15+ years.
Currently LTC policies are priced with a less than 1% lapse rate built in, the inflation options are very expensive to cover the risk of a low interest rate environment. What this means is that the products themselves are not as rich as they were in the past and are much more expensive. They also still have a risk of an in force rate action but it is much lower than the old polices.
This is still the most cost-effective way to protect your clients from a Long Term Care risk, as it only protects against LTC, and nothing else.
Hybrid Products
Hybrid products are a type of LTC product that combines life insurance or annuity features with long term care benefits. It does this by accelerating the life insurance or annuity benefit while the client is still alive for LTC expenses.
These products can be a good option for people who want to protect their families and their retirement savings, but do not like the idea of Traditional LTC and have the funds to use for this type of plan.
There are a number of different hybrid products available, so it is important to shop around and compare your options.
These products are most often designed as asset reallocation plans, meaning moving money for one place into this plan. Depending on the client’s agent these plans may also be designed as short pays (5,10,15, 20 years).
Since this plan is filed as a life insurance policy there is no concern about in force rate increases.
Life Insurance Riders
If your clients are more focused on Life insurance protection, adding a LTC rider can be a good way to add affordable additional protections. This option is a rider that is added to a Permanent life insurance policy that accelerates the death benefit while the insured is still alive to cover the cost of long term care expenses.
Most of these riders are added to the flagship life insurance plans from our carriers, so if you never need LTC, than great you have a great life insurance policy, but if you do need it, you can use the life insurance policy instead of your retirement to cover the cost of Long Term care expenses.
Educating Your Clients About LTC Protection
The first step in LTC planning is educating your clients about the need for protection. Explain that LTC planning is not about buying a specific policy, rather it is about protecting their families and their hard earned retirement savings from the life changing event of an extended health care need.
There are a number of resources available to help you educate your clients about LTC, including the website of the National Association of Insurance Commissioners (NAIC).
LTC can be a costly expense, but there are a number of funding options available. By educating your clients about the need for LTC protection, you can help them make informed decisions about their LTC planning.
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