The cost of long-term care can be devastating to your clients if they are not prepared. Unfortunately, the long-term care insurance (LTCI) business has not been financially rewarding for major insurance carriers—they are abandoning the business in record numbers. As a result, advising your clients to purchase this insurance is not going to provide a solution to the modern long-term care dilemma. The need to plan for the costs of long-term care is not going away with the insurance plans. So, what do you tell your clients?
Several options exist, but a smartly crafted annuity strategy may provide the solution and simultaneously offer your clients a substantial tax break.
What is the problem with LTCI?
The cost of long-term care has skyrocketed recently—it may cost as much as $4,000 to $8,000 a month to cover the cost of in-home care or nursing home expenses. The costs increase exponentially when today's longer lifespans are taken into account.
To prepare for these costs, insurers have relied on the fact that policyholders will generally make payments over an extended period of time before making a claim and have invested these payments to build adequate reserves. Lower-than-expected investment returns coupled with increasing claims have left many insurance carriers inadequately prepared for the rate at which long-term care costs have risen.
As a result, 10 of the 20 largest insurance companies have stopped offering long-term care insurance in the past five years, with Prudential and MetLife exiting the business most recently. Consequently, it has become much more difficult for your clients to purchase adequate long-term care coverage.
Though insurers who have policies outstanding cannot cancel the policies, they can petition state insurance commissioners to allow premium increases. Some insurers have chosen to take this route to manage the costs of the policies currently in effect, in some cases doubling premium costs to existing customers in the process.
