Why selling LTCI makes sense now more than ever.
Now is the time to speak with consumers about protecting their retirement savings and hard-earned assets with long term care insurance. The market volatility and subsequent investment losses people have experienced over these past months are causing people to question their ability to achieve financial security in their retirement years. In the face of this unprecedented economic uncertainty, many people are reevaluating how to protect their future against the high cost of long-term care. You can help.
The Rising Cost of Long-Term Care
Long-term care is becoming more expensive while uninsured individuals face dwindling financial resources to fund out-of-pocket costs.
The cost of long-term care continues to climb research finds the average median yearly rate for a private nursing home room in the United States to be $74,208, compared to $62,415 in 2005, a 4.27% compound growth rate.
The problem for many consumers is that even without future increases, long-term care is already too expensive. "$74,000 is a lot of money," says Anne Tumlinson, vice president at Avelere Health, a Washington-based consulting firm. Tumlinson is author of a new report with the Kaiser Family Foundation, Closing the Long-Term Care Funding Gap, which studies trends in the long-term care insurance (LTCI) market. According to the report: evidence exists that long-term care insurance provides a valuable benefit to the vast majority of claimants. In fact a majority of respondents surveyed for the report stated, they would have to decrease the amount of paid care they received if they did not have their policies.
It's a different world now. People are less prepared than they ever imagined.
Barbara Stucki, PhD, National Council on Aging
The good news for consumers considering LTCI is that even though there appears to be no ceiling on the cost of care, LTCI premiums don't show the same upward pressure. Industry experts believe premiums should hold relatively steady going forward. For her part Tumlinson says, We are cautiously optimistic that premiums will level off.
The Effect of the Economic Downturn
The newest factor affecting the LTCI decision in addition to cost of care and premium trends is the dwindling financial resources of people who may have been planning to pay for the care themselves out of pocket. It's a different world now, says Barbara Stucki, PhD, director of the reverse mortgage project at the National Council on Aging. People are less prepared than they ever imagined. Stucki notes that past methods of paying out-of-pocket costs don't exist in the same way today.
Tapping the value of a house to fund a nursing home stay was one very common strategy, but with the collapse in real estate values and stagnation in sales, this is no longer such an attractive or even available option. We are in a position where the old methods of paying for care no longer work, says Stucki. Boomers are hoping to self insure and tap strategies that won't be there for them.
What this means is that consumers are caught in the crosshairs, in the words of the Kaiser Family Foundation report. The downturn in the stock and real estate markets has only widened the gap between the cost of long-term care and the financial resources of people who lack LTCI.
The New Reality
This circles back to the LTCI decision. Clients who don't buy LTCI are in some senses gambling with their future care. They may be hoping their children or family can take care of them. Or perhaps they think the government will step in to help. Or maybe they think between their home and savings they have enough assets to pay for the care itself if it is needed.
However, the rising cost of care, coupled with the financial meltdown, has brought a changed reality and the need to reconsider long-term care funding plans. As Stucki says, for boomers who don't have defined benefit pensions, who don't have guaranteed income and are planning to rely on investments or their home for the cost of care, then LTCI provides a more useful hedge than ever, and a critical way of better managing risks.
Look at the company behind the policy.
It is important to feel good about the financial decisions you recommend to help your clients secure their future. Looking carefully at the company behind the policy you are recommending is an important part of the financial planning process.