Baby boomers are a generation meant to stay young forever. So why in the world would any of its members need Long Term Care Insurance, much less attached as a rider to a life insurance policy? Actually, there are a lot of great reasons. The challenge, however, is in explaining the solutions this cost-effective combination can provide to a group that has no plans for slowing down.
To address that challenge, Nationwide Financial brought together the following group of top advisors and executives: Shawn A. Britt, CLU and Senior Advanced Sales Consultant, Nationwide Financial; Charles E. Moore III, LUTCF and Financial Advisor, Griffin-Moore Insurance & Financial; Ramona Neal, CLU, ChFC, REBC and Product Director for Business Development Nationwide Financial; Troy Anderson, CLU, ChFC, Vice President Non-Affiliated Life Sales, Nationwide Financial.
Joseph Finora, a former registered representative and Senior Market Advisor contributor, served as moderator.
Joseph Finora: Let’s get right to it. Why does life insurance with an LTCI rider make sense for boomer clients?
Troy Anderson: For a boomer who’s accumulated a lot of retirement assets, the last thing they’re going to want to do is use up their savings for long term care needs. If they’re married or have a significant other that needs those assets, they certainly won’t want to spend them and then not have them available later.
Ramona Neal: Three top financial-planning goals for boomers are having enough investments to make it through their lifetime; to be able to afford their health care; and not relying on their children. We can provide solutions to each of these.
Finora: Boomers are generally more educated on financial matters than previous generations, so this product makes sense, doesn’t it?
Charles Moore: One of the problems with long term care is a lot of people look at it as a use-it or lose-it product for traditional care. They pay the premiums for long term care for many years without knowing if they’ll ever need it. It’s not a cash-value product.
But life insurance with an LTCI rider can be a great fit particularly for the boomer generation. There is very little premium savings on long term care insurance for a boomer versus someone who’s 60 and considering long term care coverage. There’s not as great a difference in long term care premiums between a 40- and 60-year-old. But when you look at incorporating the rider onto the life insurance, the boomer would pay about one-fifteenth the premium amount for the coverage on the life insurance policy as they would for a stand-alone LTCI policy.
Shawn Britt: You have to think about the boomers being that “Sandwich Generation.” They’re trying to get their kids through school while worrying about how to pay for mom’s LTC bills. However, if they’d buy the policy and own it, making themselves the beneficiary, they’ve put together a pool of money that is available to pay for mom or dad’s LTC needs. But if they never need it, they’ve got the life insurance policy that then gets them the money back they invested in the plan, plus more.
Neal: There’s also an emotional component to this. Many of these boomers have spent their whole lives building wealth. The reasons why they have this asset, whether it’s life insurance, an annuity or any other asset, is there’s this goal of leaving a legacy for their heirs. Yet at the same time over 70 percent of them are willing to take the risk and self insure, hoping that their investments will cover them.
Moore: Boomers are pounded with bills. Insurance is one of the last things people want to spend money on. They’ve leveraged themselves to the hilt. They want permanent coverage and commonly look at variable universal life. They know LTCI is a great fit for them. It’s a lot easier to convince a client to add it to their variable or universal life policy rather than procure another stand alone product. If we can keep their premiums down, enabling them to affordably incorporate long term care planning, it can be one extra-large bill they can avoid.
Britt: I don’t think it’s a new phenomenon and find it across all classes, whether they’re typical middle class people or fairly affluent. It’s all relative. If you can leave an extra $50,000 to your family because your advisor helped you rearrange your assets, it may not seem like a lot to a very wealthy person, but it’s all relative. To a middle-class person $50,000 is a lot of money.
Neal: That’s the point. Leaving an inheritance to your heirs is part of the American dream. They don’t leave the legacy without the planning.
Moore: I’ve got senior and boomer clients and when you look at the percentage there’s a much higher percentage of seniors who want to do what they can to make sure their children, who are mostly boomers, receive something. The senior market remembers what their parents went through during the Great Depression. The lesson that you need to be saving resonated better with them over the years. Unfortunately I don’t think the boomers make this as high a priority.
Finora: What about the perception issue? People view long term care as a “nursing home” issue. Conversely, boomers look forward to retirement as an enjoyable experience.
Britt: About 40 percent of those needing some type of long term care are between the ages of 18 and 64. That’s a much bigger percentage than most people realize. So life insurance needs to be looked at as its own type of asset class. With the living benefits it now offers, it’s not just about dying anymore. You can now use life insurance to protect your assets while you’re living.
Anderson: People understand the need for life insurance to protect against sudden, unexpected loss. But thinking ahead, what if there’s a terrible accident and you’ve got permanent long term care needs? In the case of someone who becomes paralyzed, their needs may far exceed what they may have in terms of savings to cover that 10-, 20-, 30-year long term care need.
Britt: One of the ways you can approach it is by insuring one’s insurability. You can talk about a stand alone policy later, but at least if the rider is added something’s in place.
We’ve each heard stories about someone who had a stroke or heart attack when they were 42 years old. After suffering a stroke one’s uninsurable. They’re never going to get long term care coverage. If an LTCI rider had been added to the life policy, however, there’d be a pool of money for that purpose.
Neal: Some boomers will self insure and some won’t need long term care. Yet 60 percent to 70 percent of nursing home residents are women. For people like the mother who needs health assistance or self assisted living or a nursing home, then they’ll burn through the assets.
Britt: Only 21 percent of people end up in a nursing home. The other 79 percent are in various types of care such as in-home health care, assisted living or an adult daycare facility. Even a parent living at home with an adult child, who can perform two of the six ADLs will one day need a greater level of care.
Moore: Whenever you’re considering life insurance or long term care you never want to look at them from an emotional standpoint. You have to look at them from an investment standpoint.
If you look at the power of life insurance and the effectiveness of passing on tax free money to the next generation, it’s a great buy from an investment standpoint. If you break it down and look at the tax implications and everything else, it make sense as an investment, regardless of how it’s going to be used. The long term care involved is one more component that may be an extra value to the family.
Finora: What might be the consequences if boomer clients decide not to insure?
Britt: There are a lot of producers and attorneys who think Medicaid planning is a great thing. One of the reasons why the look-back period was extended from three to five years is that Medicaid became the “inheritance protection” for the middle class. The government had to do something since a third of those receiving Medicaid for long term care could have afforded long term care insurance.
One of the problems with Medicaid planning is first, you have to give all your money away, possibly to a trust or to your children. When the five years are up you may qualify for Medicaid but along the way every time you’ve needed money, you had to ask your children or a trustee for it. It’s not a good position. Plus Medicaid generally sees a nursing home as the only choice. There’s no adult daycare or in-home health care with Medicaid.
The other scenario is if you had enough money to pick your own nursing home and later get on Medicaid things can change. While you cannot be removed from the home, you can be changed from a nice private room to one with two or three others in it. If someone has the type of assets that warrant a planner, then they’re probably accustomed to a certain lifestyle.
Moore: It’s been projected that the boomer generation will spend more on adult care for their parents than on child care. In boomer households it’s common that both husband and wife are working. We’re relying on dual income because we spend more now than ever before.
Coverage can help those boomers providing for their parents in adult daycare. They can be comfortable dropping off their parent on their way to work and picking them up on the way home. Having such a policy in place is just one more way to help make sure they can do what they want to do for their parents.
Anderson: I think it comes down to educating advisors as well. Advisors look at a portfolio of assets as something they want to manage. Life insurance with long term care is an asset. The more we can educate clients on how this fits into their portfolio of assets and how it’s in the client’s best interest to have this in their portfolio, the more likely they’ll leverage that knowledge.
Neal: Producers and financial planners need to adjust to the changing legislative environment, which is the Pension Protection Act, and the portability now between long term care and other assets. Many advisors may not be addressing this but they’re going to have to because it is now an option for clients.
There are at least 20 companies offering some sort of long term care or long term care like benefit, whether it’s indemnity or reimbursement. There’s also a newer accelerated type for which you only pay should you use the long term care services. They even have waiver of surrender charges for confinement in a nursing home. So the gamut is large and broad.
Finora: What are the benefits/advantages of an indemnity plan versus a reimbursement plan for boomers?
Britt: A reimbursement plan may be good for those buying a large policy as they can cover the cost of an expensive facility but it will pay no greater than the benefit one’s set to receive. An indemnity plan pays the benefit amount signed up for whether the policyholder needs it all or not. This can be helpful in places where long term care isn’t as expensive. They may receive more money than they need to pay their bill, which can then be used for things like home modifications such as adding a wheelchair ramp or reconstructing a bathroom. The indemnity plan is also simpler because there are no bills or receipts to submit. Once the insured qualifies the checks are distributed.
So an indemnity plan is more convenient in most cases unless you’re a wealthier client in a very pricy facility. That’s when you might need to be in a plan that would allow you to collect more than the HIPAA per diem rate.
Also a lot of boomers are small business owners or are key people in companies. With an indemnity-type contract, there are some creative uses for them, one being in buy/sell agreements.
We offer the long term care rider to add to the policy to protect the buy/sell agreement. It pays the healthy owner who then uses that income to buy his unhealthy partner out on an installment basis. These solutions, which were not available in the past, are only available with an indemnity-style contract.
Moore: The big thing is having choices. This can be a great buy for those who saw their parents or grandparents lose everything. Boomers need to be made to look at this as something that’s going to provide good, flexible quality care for their parents, their spouse and themselves and protect assets. It’s an emotional and financial solution that they need. Everyone wins in this situation.
Shawn Britt has been a member of Nationwide’s Advanced Sales Team since 2005 and is considered an expert in long term care. Britt graduated with a BA from Bowling Green State University. She is Ohio life and health licensed and holds the NASD Series 6 license.
Charles Moore, a partner in a Nationwide exclusive agency, holds the following designations and licenses: LUTCF, CLTC, MDRT, COT, North Carolina life and health, Property and Casualty, Series 6, 7, 63 and 56.
Troy Anderson joined Nationwide in 1996 to start the corporate insurance operations. In 2006 Troy became vice president non-affiliated life sales. Anderson holds professional designations as a FLMI, CLU, CFC and member AALU.
Ramona Neal is a Nationwide product director for competitive intelligence specializing in variable life insurance. She holds her CLU, ChFC, and REBC designations. Neal has an undergraduate degree from Ohio State University.
Joseph Finora, is a financial writer, former registered representative and Senior Market Advisor contributor.