Now Is The Time To Educate Your Clients On The Living Benefits Of Asset-Based Long Term Care
What do your clients know about long term care? Do they understand the living benefits that asset-based long term care protection can provide?
Recent research suggests most of them don’t.
In August, OneAmerica® commissioned a national survey, conducted online by Harris Poll1 to gauge some of the misperceptions about long term care that professionals in our field have been hearing for years. The results were eye-opening. On one hand, for many years, the long term care insurance market has been dominated by traditional, health-based LTCI, so it’s not surprising that Americans understand less about how asset-based products work. However, even among Americans age 45 and over—the segment we typically think of as preparing for retirement—showed a lack of general understanding about how paying for long term care needs might affect their retirement strategies.
You might have seen some headlines about these findings, but the results are worth exploring more. These results can be useful in thinking about how to bring up long term care protection in your next client conversation.
Paying for long term care
Let’s start with the basics—how do people plan to pay for long term care needs? The survey responses (see fig. 1) show a widespread lack of planning at worst, and potential gaps in planning at best. A whopping 61 percent of Americans age 45 and older said they’d expect Medicare or health insurance to help foot the bill, even though neither of those typically cover long term care. Only nine percent answered they’d use Medicaid to pay for long term care needs, when in reality about 62 percent of current nursing home residents are supported primarily by Medicaid.2
Are people confusing Medicare and health insurance with Medicaid? Maybe, and if so they may also be confused about Medicaid’s qualification requirements. They may be surprised to learn that, unlike Medicare, Medicaid has strict asset limitations that could affect the assets they’ve earmarked for retirement or the legacy they plan to leave. One of the benefits of asset-based long term care protection is that the client maintains ownership of their asset—which can be used for long term care costs if necessary but otherwise can be left as a legacy.
Fewer than half—40 percent—of Americans ages 45 and older said they’d pay for long term care needs with personal savings and/or other assets. For those who plan to self-fund long term care, it’s worth a conversation to make sure they understand a) the tax implications of liquidating assets when they’re needed for long term care; and, b) the true cost of long term care, whether it’s provided in-home or in a facility.
The cost of care varies depending on the duration and type of care needed and where you live, but averages range from $20 an hour for a health aide to $7,698 per month for a private room in a nursing home.3 Those averages are generally higher in the northeast and on the west coast.
At even the low end of costs, long term care expenses can quickly exceed retirement savings, resulting in an income gap that depletes assets faster than you or your client planned. Long term care protection can help close that gap by providing income to be used for long term care expenses.
Tax implications of self-funding also may take a bigger bite out of your client’s assets than they realize. Liquidating assets to pay for long term care will often have tax consequences, whereas benefits paid from qualifying long term care protection are non-taxable. What client doesn’t want to avoid unnecessary tax burdens in retirement?
Living benefits of long term care protection
If the need for long term care protection is so high, and quality coverage is available, why don’t more people have it? Estimates vary, but the latest data from LIMRA suggests that less than seven percent of consumers over age 50 have long term care coverage.4
Once again, our survey pointed to misconceptions about long term care insurance and to a need for education on the living benefits that asset-based long term care can provide—which can overcome a number of the traditional objections to long term care insurance.
More than half of Americans who don’t have long term care insurance – 53 percent – said the reason they don’t have it is because it’s too expensive (see fig. 2). Interestingly, this perception held true regardless of income level, with 48 percent of Americans with an annual household income of $100,000 or greater listing expense as a reason they don’t have long term care insurance. Anecdotally at least, this perception seems to be driven more by the experience or fear of significant rate increases that have been experienced for traditional LTCI.
In reality, asset-based long term care products put protection within reach of more people than many realize. While asset-based long term care is not inexpensive, once clients understand the features and benefits they quickly see the value. Guaranteed premiums give clients the peace of mind they seek, and flexible payment options let clients budget their long term care protection expense in a way that best fits into their overall strategies. Some clients may want to reposition an existing asset into an asset-based long term care policy; others may choose to pay over a longer period of time and enjoy guaranteed premiums and the option of lifetime long term care benefits.
Asset-based long term care protection works to provide living benefits by allowing 100 percent of an accelerated life policy death benefit, or 100 percent of an annuity accumulation value, to be paid for qualifying long term care expenses (paid monthly). A continuation of benefits rider can ensure payments continue after the death benefit or accumulation value is exhausted. And a joint protection option can insure two lives with one policy. Benefits not used for long term care while the insured is living are passed on to heirs.
Beyond expense, 25 percent of Americans who don’t have long term care insurance said it’s because they don’t want to pay for something they may never need. This is the “it won’t happen to me” crowd—a crowd who would benefit from learning more about the death benefit provided by asset-based long term care protection in the event the long term care benefits aren’t exhausted. Asset-based long term care may also offer a return-of-premium option if clients change their mind about continuing protection.
Americans in the highest annual household income level—$100,000 a year or greater—were more likely than other income brackets to say they’ve heard negative things about long term care insurance (19 percent vs. six percent of those whose annual household income is less than $100,000), suggesting it’s time to introduce your higher-income clients to asset-based long term care protection. Sales of asset-based long term care products are on the upswing as more people discover its value —LIMRA’s latest data4 suggest six in 10 consumers would consider such a product.
This brings us to the 13 percent of Americans who don’t have long term care insurance and say it’s because they’ve never heard of it, and the nine percent who say they don’t know how to get it. Consider them your invitation to start the conversation about long term care, including the living benefits that hybrid policies can provide.
FSA, FCIA, MAAA, is senior vice president of Individual Life and Financial Services for the companies of OneAmerica®. He formerly worked as senior vice president of Product and Business Development, overseeing insurance operations and product development for life, annuity and asset-based long term care, as well as broker-dealer operations. In addition, he provides leadership and vision for the current and future product portfolio and identifying opportunities for expansion. Martin joined the companies of OneAmerica® in 2009. Earlier in his career, he gained actuarial and marketing experience at Great-West Life in Canada and spent eight years with the Western & Southern Financial Group and Columbus Life building out their product development capabilities. In addition to his actuarial and product knowledge, Dennis has significant experience working directly with sales and distribution across multiple distribution channels. Martin is a graduate, with honors, of the University of Manitoba, with a Bachelor of Science degree in Statistics and Actuarial Science. He is a Fellow in the Society of Actuaries (FSA) and Canadian Institute of Actuaries (FCIA), and a Member of the American Academy of Actuaries (MAAA). Martin may be reached at OneAmerica, One American Square, P.O. Box 368, Indianapolis, IN 46205-0368. Telephone: 317-285-2672. Email: email@example.com.