You may have heard it from colleagues, the media, or even your own clients, but there is clearly increasing momentum for protecting against long term care expenses through asset-based products. If you are unfamiliar with the term "asset-based long term care" – sometimes known as combination or hybrid long term care products – these options combine other types of products, such as life insurance and annuities, with LTC benefits.
Why the buzz? Well, as the rest of the LTCI industry continues to struggle with well-documented pricing issues, asset-based long term care products are enjoying significant growth.
There is no denying the importance of protecting against long term care expenses. The most complete retirement plans can be rendered useless by just a few years of care. Maybe this means it's time for you to enter the asset-based LTC market, where the policyholder can receive benefits even if they never require care, and where they may be able to obtain guaranteed premiums – two of the biggest objections to health-based LTCI.
Are you intimidated because you think there is too steep of a learning curve? Don't be: Just a few steps can get you in the game.
Learn the products
First, asset-based long term care products are not the same as health-based LTCI policies, and are not sold as such. Asset-based products are underwritten and issued by life insurance companies, and use a life insurance or annuity chassis. This means that benefits are available through death benefits and cash values, should the client ever need long term care. They are commonly funded with a single premium that clients reallocate from existing sources, such as other annuities, CDs, rainy day funds, or qualified money, allowing clients to forgo ongoing, annual premiums.
You can begin to identify these assets by using a conversation starter along the lines of, "If you needed long term care tomorrow, where would you get the money to pay for it?" Just remember that the asset identified should not be one that is needed for income, and that you should always weigh the benefits, costs, and implications of the new product in order to determine if it's suitable for your client.
Life insurance and annuity-based long term care products differ in their approaches: Life-based products provide immediate leverage in the form of a death benefit that the policyholder can put toward qualifying LTC expenses. At death, any unused benefits pass income tax-free to heirs, and tax-qualified long term care benefits are also income tax-free. Annuity-based products have benefitted from the Pension Protection Act, which states that if specific criteria are met, annuity withdrawals for qualifying long term care expenses can be taken income tax-free. Annuity-based products accumulate value for future LTC expenses as opposed to the life insurance approach, which has a day-one death benefit. Both life and annuity-based products typically offer the ability to extend LTC benefits beyond the death benefit or annuity value, and some companies even do so with guaranteed premiums.
You will also notice that there are different approaches to these asset-based LTC products. For example, life insurance options include both whole and universal life. While universal life insurance can sometimes offer slightly higher benefits, whole life-based products typically offer many more guarantees. On the annuity side, you can use either fixed deferred or variable deferred annuities as vehicles. Again, one offers more guarantees than the other; you can discuss the pros and cons with your clients.
Understand the market
Asset-based long term care and health-based LTCI both attract different audiences. Typically, clients who purchase asset-based products tend to have more liquid assets. This is because the typical sale is single premium. But that is not to say we should have visions of Vanderbilts and Rockefellers in our heads. The history of asset-based long term care products, which dates back more than 20 years, has shown us that typical clients are in their 60s, 70s, and even 80s, with liquid assets of $300,000 to more than $1 million.
Because they've worked hard for what they've accumulated, these prospects expect their dollars to provide value and serve multiple purposes — exactly what asset-based long term care products are designed to do.
Present the options to your client(s)
