Paying for Long Term Care, a New Look at an LTC Insurance Policy

One of the most challenging parts of insurance planning is the sale of long term care insurance.  As the population ages, the need for this type of coverage is becoming more and more important and needs to be addressed.  People are living longer and the probability that they will need some type of care increases.  The average annual cost of care for 2011 in New York State, for example, as per Genworth Financial are as follows:  Home Health Aide – $48,048 per year; Adult Day Health Care – $12,480; Assisted Living Facility (private, 1 bedroom) – $43,920; Nursing Home Care (Semi-private room) – $114,975 or (private room) – $119,355.

The cost of care at all levels can threaten a budget of someone whether they are still working or retired.  The word on the street is that long term care is expensive.  Well, it is.  A typical LTC premium will cost a client anywhere from $2,000 to $5,000 per year. (The cost will obviously depend on many factors like client age, duration of policy as well as the bells and whistles on the policy selected).  The bottom line is paying a controlled amount of money annually is far better than risking an unpredictable and potentially devastating cost in the future.  There are ways to keep LTC premiums affordable, however.

Let’s take a look at some ways to help your client get off the starting line:

  • Buy Long Term Care insurance Early – Premiums for LTC are based on age.  You do not “save” premiums by waiting until you get older.  Long Term Care insurance premiums rise substantially with age.  The earlier you buy the coverage, the lower the cumulative insurance premiums will be.  Therefore, you do not save money by waiting, but you DO lose benefits.  For example, if you have two prospects – one age 55 and one age 75.  For this illustration we will assume both of them have the same health history at the time of purchase.  The 55 year old will pay $46,710 in premiums from age 55-85 with a benefit of $1,201,912 at age 85.  The 75 year old will pay $58,900 in premiums from age 75-85 with a benefit of $452,988.
  • Good Health Discounts – The health history of a client can affect premiums by as much as 150%.  Therefore, if you have a prospect that is in good health, it makes sense to have the client buy the coverage to lock in advantageous rates.  The older someone gets, there is a better chance for their health to begin to deteriorate.  A serious medical condition may deem a client ineligible for any coverage at all.
  • Spousal Discounts – Married individuals can get discounts of 10% – 35% annually.  Many companies even offer the discount to committed couples that are cohabitating and siblings that live together.  Check your carriers for special situations.
  • Tax Deductions – Long Term Care insurance premiums on tax qualified policies are considered medical expenses under current IRS guidelines.  Therefore, if a client’s medical expenses exceed 7.5% of their adjusted gross income, they can write off the excess as an itemized deduction on Schedule A.  Some states even have a state tax deduction.  New York allows for a 20% tax credit on premiums paid.  This is a tremendous benefit.  Do your homework and let your client know what the tax benefits would be in their case.  It certainly makes the premium easier to swallow.** If your client is a sole proprietor, partner or LLC owner, they can deduct all the premiums for a qualified long term care policy whether or not they itemize.  Have your business client speak to their accountant to ensure they qualify. **
  • Plan Design – You may have a client that really wants the coverage, but truly cannot afford the quoted premium.  It is better to have some coverage than no coverage at all.  If you have the client co-insure the cost of care, you can significantly reduce their premiums.  For example, if you lower the daily benefit by 20%, you can reduce the premium by about the same percentage.  You can even suggest a shorter policy period.  Opt for a 4 year policy versus a 6 year and you can reduce the client’s premium by 15-30% annually.  You can also opt for a longer elimination period.  You just have to ensure that your client knows that if they have a 90 day elimination, they will have to pay for all costs during this period until the policy starts.
  • Annual Premium Payments – As with most insurance policies, the more frequently you pay, the more expensive the annual premium is for the policy.  You can save 8% a year just by opting to pay your LTC premium in one lump sum on the anniversary date.

It is a hard topic to talk to clients about due to the nature and the cost of the insurance, but it is something that most people need.  You may not get a thank you card for selling them Long Term Care insurance today, but if they need the insurance, I bet you will get several thank you cards from spouses and family members for easing the burden on their financial situation.

Denise Nostrom entered the financial services industry in 1990.  She started her own firm, Diversified Financial Solutions, in 1996 which focuses on personalized customer service.

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