Avoiding the Sticker Shock of Long-Term Care Insurance
There’s a fair amount of sticker shock when clients ask how much it costs to plan for a possible long-term care need. And compared to other insurance policies, long-term care coverage can seem expensive. But before we look at the cost of insurance, we need to put things in perspective by starting with the cost of care.
If you haven't asked where your clients want to retire, start with that. It helps create an accurate picture of funding, while simultaneously shifting the conversation to what they hope their retirement lifestyle will look like.
According to Genworth’s Cost of Care Survey for 2021, the annual national median cost of care in 2021 ranged anywhere from $20,280 to $108,405, depending on your needs. Breaking that down to monthly costs, that’s between $1,690 - $9,033 a month to provide care for you or your loved one.
Annual National Median Costs 2021 *
- Homemaker Services: $59,488
- Home Health Aide: $61,776
- Adult Day Health Care: $20,280
- Assisted Living Facility: $54,000
- Semi-Private Room in a Nursing Home: $94,900
- Private Room in a Nursing Home: $108,405
Avoid Sticker Shock
Now that we know how much care costs, and where they want to retire, we’re able to help our clients plan for it. If there is an LTC event, where will the money come from? And how will an LTC need affect their portfolio? More importantly, if they need care for an extended period, how much will be left for their spouse to live on (or even fund their own care)?
Instead of diving in with a high-priced single payment option, we're going to do two things:
- Quote a smaller amount
- Spread the payment out over time
Quote Less Coverage
We get a lot of calls from advisors who ask, “What can my client get for $100,000 in linked-benefit coverage?” It makes sense. A nice round number to see what the coverage looks like.
But here's the problem — the benefits change by age. If you put the same amount of funding into a 40-year-old vs. a 70-year-old, you could be under-insuring or potentially over-insuring. And that's even before considering underwriting.
Many times people look up the cost of care, give the nursing home price to their clients, and try to quote a plan that will comprehensively cover the costs. That may work for some high-net-worth individuals, but it comes with a hefty price tag.
Most clients are more likely to receive care through something other than a nursing home. A good approach is to hedge against long-term care risk by solving for a benefit that covers 50% of the local private nursing home costs. Use that as a starting monthly benefit number to quote for coverage. Typically, this will take care of most of your clients' home healthcare or assisted living costs. If not, it's going to get really close.
There are specific numbers to support the cost of an aide, but to get an idea, look at the cost of nursing home care in the area they want to retire, then divide it in half.
Spread the Payment Out
If you start the conversation by asking clients to write a check for a single premium payment, you're going to get some big eyeballs. Single pays have a lot of benefits — it's one transaction and clients can get more leverage out of it. But at the beginning of a conversation, it's not what people want to see.
To avoid a large lump sum payment, take advantage of the carrier's payment options. Structuring the premium payments over 10 years will make the coverage more affordable on an annual basis.
Funding rules everything — and is a reason many conversations break down. A 10-pay keeps the conversation going.
Hedge the Bet on Care
Depending on which statistics you look at and your age, there's a 50% to 70% chance of needing long-term care assistance. With this 50/10 hedge strategy (coverage for 50% of the nursing home cost paid over 10 years), you don't have to ask clients to fully insure. But in the event your client does have a long-term care need, you will have slowed down the bleeding of their other assets. Something is better than nothing!
And, since it's built on a linked benefit policy, if they don't use it, you'll have additional benefits through the underlying life insurance (or annuity).
If you're talking with clients who are on the fence about the cost vs benefits, this strategy is a great place to start. Try it. Let me know how it goes. Once we have your client’s attention, our team will be there to run and re-run quotes until we get a custom illustration dialed in to their needs.
*Source: Genworth 2021 Cost of Care Survey
As an LTC Specialist for Ash Brokerage, Stephen is committed to helping advisors have long-term care conversations with their clients. Prior to joining Ash, Stephen earned a Bachelor’s in Finance from Rowan University as well as his Series 6 and 63 and life and health licenses. He spent 10 years in the mortgage industry in both sales and operations before transitioning to Lincoln Financial in 2007, where he worked for 14 years as an internal wholesaler for linked benefit products.
