Seven out of 10 Americans will need long-term care at some point in their lives, and two out of 10 will require it for longer than five years. However, only one-third of Americans are confident in their Long-Term Care (LTC) plans.
Long-term care expenses can throw a major wrench into the best-laid retirement plans, with average LTC costs ranging between $35,000 and $108,000 per year, depending on the type of care provided. This makes it critical that couples think about and plan for how they will pay for long-term care if the need arises.
How Can LTC Expenses be Funded?
There are four main ways for couples to fund LTC expenses:
- Self-fund — LTC expenses are paid for using assets accumulated in retirement or other savings accounts. Couples using this strategy should consider that long-term care events usually arise quickly, however, so they may need to convert assets to cash quickly to pay for the expenses. Also, using retirement savings to pay for LTC could negatively impact their retirement lifestyle. Many people in retirement mistakenly think they can and will cover these costs by self-funding, only to realize that it completely derails not only their lifestyle, but their ability to leave a legacy for children or heirs as well.
- Medicare and Medicaid — There are limitations to these programs when it comes to using them to pay for LTC expenses. For starters, Medicare is not designed to provide long-term care. Instead, it pays for care in a skilled medical facility after an accident or injury, such as a fall. In these instances, Medicare covers the first 20 days in a skilled medical facility at 100 percent and days 21-100 with a daily deductible. Medicaid can potentially provide LTC coverage if certain criteria are met, but there must be a significant asset spenddown first by both spouses. In fact, in most states the asset limit is $2,000 per individual, meaning a husband and wife could have no more than $4,000 of countable assets (bank accounts, retirement accounts, stocks, bonds, cash). This essentially means you must be broke to qualify. Medicaid also offers limited choices in the types of long-term care available.
- Traditional long-term care insurance — These policies are specifically designed to pay for long-term care expenses. They tend to be a better option for younger couples who can meet the qualification criteria and afford the premiums. LTC insurance costs rise with age and qualifying for coverage becomes harder, so retirement-age couples often are faced with skyrocketing premiums right when they may need coverage the most. Adding a return of premium rider to an LTC insurance policy can provide couples with options if they don’t end up using the benefits, but in many cases these are ‘use it or lose it’ policies.
- Hybrid product — These products are life insurance policies or annuities with long-term care benefits attached. They are also referred to asset-based long term care, as they are typically purchased with a lump sum amount. One benefit of hybrid products is that they usually feature less-strict underwriting compared to traditional LTC insurance. Couples may also enjoy additional benefits beyond long-term care coverage. For example, a life insurance hybrid offers a death benefit that can be passed on to beneficiaries while an annuity hybrid offers a contract value that can supplement retirement savings or be passed on to beneficiaries as a death benefit.
Comparing Traditional LTC Insurance and Hybrid Products
In general, traditional LTC insurance policies are less expensive for couples who qualify because they don’t offer the additional benefits of hybrid products. Therefore, traditional LTC insurance may be a better choice for relatively young couples concerned primarily about paying for long-term care expenses, while hybrids or asset-based LTC policies may be the best choice for older couples nearing retirement who don’t want to pay high ongoing premiums for guaranteed coverage.
One option for these older couples is an income annuity with an income enhancement feature, such as a doubler. This does not provide long-term care coverage; rather, it is designed to provide additional income to help offset LTC costs. If a spouse cannot perform two out of six activities of daily living, the amount of guaranteed income will increase for a certain length of time.
Another consideration when comparing traditional LTC insurance and hybrid products is premiums lost if the policy is cancelled. With traditional LTC insurance, no value is usually retrieved if the policy is cancelled unless the policy includes a return of premium rider. Conversely, hybrid products may offer the opportunity to recoup some premium dollars if the policy is cancelled.
One of the biggest differences between traditional LTC insurance and hybrids lies in approval. Underwriting is stricter with traditional LTC and approval rates are lower — another reason why this option is often best for young couples. Conversely, hybrid products often feature simplified issue underwriting or guaranteed issue, which results in higher approval rates, especially for older couples.
Also, with traditional LTC insurance, no death benefit passes on to beneficiaries if the insured dies before using benefits unless the policy includes a return of premium rider. With a hybrid product, there could potentially be a death benefit or contract value to pass on to beneficiaries.
Long-Term Care Campaign Now Available
Now there’s an opportunity for you to help your clients address their long-term care needs using hybrid products and build your business while doing it. Tarkenton Financial has launched a new turnkey Long-Term Care Campaign that includes everything you need to prospect, plan, and produce as you engage clients and prospects on the critical question of “How will you meet long-term care expenses in retirement?” The campaign includes:
- Talking points for client conversations
- A decision tree to help you understand if LTC is a fit for your clients
- Product highlights from three leading LTC products
- An 8-part client/prospect email drip campaign
- 40 pre-written social media posts with graphics
- A direct mail postcard and letter
- An LTC Planning Guide and questionnaire
- A complete client-facing LTC PPT deck
- A series of training videos, including how to find LTC costs in your local market
To access the LTC Client Campaign materials, click here to login to Tarkenton’s Business Builder portal, or contact your Tarkenton Financial annuity or life marketer!
If you’re not currently working with Tarkenton Financial, click here to get in touch and learn how to get access to the LTC Client Campaign and the many resources we offer to independent advisors!
SOURCES:
https://www.oneamerica.com/financial-professionals/leading-tomorrow/long-term-care-consumer-study
https://www.retireguide.com/guides/cost-of-long-term-care-by-state/