Despite long term care insurance's compelling benefits, producers report they still have to slog through dogged struggles with prospects to get them to purchase.
So one more time: Exactly what is the value of owning an LTC insurance policy? Here's how some noted experts spell it out for clients:
"One of the things about being a large administrator and managing 13,000 claims and seeing $5 million to $8 million dollars a month going out the door to pay claims, I know there's value," says Peter M. Goldstein, executive vice president, Long Term Care Group Inc., Segundo, Calif. "So when I hear, 'There's no value,' I always say, 'So who's getting the $8 million?"
The industry passed the $1 billion mark in claims last year, he adds. That is a lot of care. And manufacturers are bringing out better policies all the time, he points out.
"In the design of policies today, part of the value is in care-management features, so not they're not just policies to pay bills anymore," Goldstein says. "Most good policies also help you find care and advice to help the family deal with the situation. So a policy provides a service as well as a financing tool."
William Dreher, managing director, Compensation Strategies Inc., New York, believes it's much easier to explain the value of LTC insurance to wealthy clients.
"I think for a great many people with middle class incomes who don't have large assets beyond their house, there are so many demands on their disposable income, long term care winds up taking a back seat. It's extremely difficult to convince people about something that is going to pay off in 30 or 40 years."
The "natural market" for LTC insurance is either corporations providing a benefit for upper level and executive staff or successful businessmen and professionals who have assets to protect and disposable income sufficient to pay the premiums, concludes Dreher.
With the tax breaks available through corporate-bought policies, many affluent clients can be more easily convinced that LTC insurance is a decent value for money, Dreher says.
"Most corporations aren't interested in providing benefits for everybody," he notes. "Because these are not ERISA plans, you can discriminate (i.e. take a tax deduction for the LTC policy, even though they don't cover the rank-and-file employee).
Some employers still are not willing to put out extra money on behalf of an executive to help him or her secure an LTC policy, Dreher says. At the same time, there's a way they can be talked into assisting executives in making the purchase.
"The business owner can tell the executive, 'I'm willing to pay the premium as long as you are willing to take a cut on your salary or bonus.' That often works out fine, because the employee winds up getting coverage using pre-tax dollars, thus saving money, while the employer has a wash," he observes.
The employer can even go one step further, if it has a deferred compensation arrangement for executive retirement. The company can offer to pay for LTC after retirement if the executive is willing to take a cut on other post-retirement benefits, he suggests.
"That way, the employer doesn't take on extra liability and saves money, because the company doesn't have to pay Medicare tax on salary transferred to the medical benefits expense ledger," Dreher says.
Claude Thau, president of Thau Inc., Overland Park, Kan., says he tries to bring the client's advisors into the discussion by talking in terms of the risk to the client's assets that they have helped to build.
"Why should the financial services industry, including CPAs and financial planners, leave clients with what is probably their largest unfunded risk?" he asks. "It could impact on retirement plans and the family business."
Even if a client seems wealthy enough to self-insure, it still leaves a big question, Thau points out: "Do they really want to? The financial planner has to know if the client will self-insure long term care, because that impacts modern portfolio theory."
Mention modern portfolio theory, and you're speaking the financial planner's language, Thau notes.
