Two fears haunting baby boomers now edging into their retirement years are (1) spending their twilight years in a nursing home, among strangers, and (2) spending inordinate amounts of money to avoid that outcome.
These concerns, say registered reps interviewed by National Underwriter, are helping to fuel demand for a product that many reps and advisors neglect to discuss with clients: long term care insurance.
"Seniors want to live their final years in a dignified way, which usually means in their homes," says Peter LanFranca, president of LTCPlans.Biz, Independence, Mo. "Long term care insurance lets them do that at a fraction of the cost they would otherwise incur by spending down savings."
Increasingly, reps say, boomers are planning not only for their own long term care needs but also those of their parents. Hence, many of them are purchasing policies on their parents. And women are taking the lead: John Noble, director of product and market development at UnumProvident, Chattanooga, Tenn., observes that women account for 60% of LTC policy purchases, compared to 40% of men.
Fueling demand for LTC insurance is the growing recognition, both among advisors and clients, that LTC is integral to a comprehensive financial plan. Other funding sources, such as Medicaid and life insurance policies that carry a long term care rider, will generally cover LTC expenses only in part.
"It's an eye-opening experience for people to realize they're not covered and what they have to go through to get LTC," says Noble. "Some clients say they'll put their assets in trust in the Bahamas, impoverishing themselves on paper [to get Medicaid]. What they don't realize is that the government will determine who will provide care and how. They lose the ability to choose."
Medicaid generally does not cover the most attractive care options, such as assisted living and home-based care, adds Marilee Driscoll, founder and national spokesperson for National Long Term Care Planning Week. To secure these services, individuals have to pay out of pocket–a potentially devastating drain on the financial resources for all but the wealthiest individuals.
Indeed, personal savings represent a substantial share of long term care costs. The Congressional Budget Office estimates out-of-pocket costs totaled nearly a third of an estimated $135 billion spend on LTC services in 2004 (excluding the value of donated care).
Given an aging population, that figure is certain to rise. According to the AARP, the number of people age 65 or greater who will need long term care is due to increase to 12 million by 2020, up from 7 million in 2001.
The ultra-affluent won't be the only ones using LTC insurance to fund this care. Reps say mid-market clients account for an increasing share of their clientele. But sources note that the high cost of LTC insurance–monthly premiums of $600 or more are typical–only makes sense for clients who have a sizeable nest egg to protect. One commonly cited figure: $250,000-plus.
Contributing to the burgeoning demand for LTC insurance is innovation in product design. Many solutions now offer, for example, riders that increase benefits in tandem with inflation; pay cash benefits; fund in-home modifications (e.g., the installation of a wheel chair ramp or medical equipment); and return premium payments to a surviving spouse upon the death of the insured.
"What wealthy folks wouldn't do in the past was buy traditional LTC insurance," says LanFranca. "When they're exposed to the new products that do the special things we talk about–living in the privacy of their home with the services they want, then securing for their estate the premiums they paid–they're amazed they hadn't heard this before."
LTC advisors emphasize, however, that LTC insurance is not an easy sale. Compared with life insurance, for example, LTC insurance doesn't offer tax-deferred, cash value accumulation. And, whereas life insurance beneficiaries are guaranteed to receive a death benefit so long as the policy is in force, no benefit guarantee is available for LTC insurance. If the insured doesn't need long term care prior to death, no benefit is paid.
