The hardest part of the disability insurance conversation isn’t the products. Or prices. It’s getting started. Face it: If you’ve put off having the talk with your clients, it’s because you’re not sure how to break the ice.
It doesn’t have to be hard. I personally use three simple questions to start things off. The questions are designed to help the client think in real-life terms.
You don’t have to talk about funding. Or insurance plans, for that matter. All you need to do is make them see the importance of planning so you can head down that path – together.
Most clients will say no. People are typically unable to fathom the idea that they will ever not be able to work. Truth is, about 1 in 4 of today’s 20-year-olds will suffer a disabling event sometime in their lives.1
Some will answer that they have savings. Some will reference their employer’s group plan. Most will mention Social Security. While these are all great resources to utilize, they aren’t always a great fall-back plan.
While group disability is a great benefit to have, it isn’t guaranteed. Also, those benefits are taxable and only replace a portion of your income. Are your clients able to sustain their way of living on 60 percent of their income, and lose part of that to taxes?
Social Security … It’s difficult to qualify. That’s a huge understatement. The wait time is long. And the approval rate is only around 34-35 percent, after multiple applications and possibly hiring an attorney. If you do finally gain approval, the benefit on average is $1,300 per month.2 Most individuals will find it very difficult to sustain their quality of life on this benefit alone.
A common thought, especially for younger individuals, is that they would be able to rely on family members for support: emotional, physical and most importantly, financial. This should prompt a follow-up question: Can you name three family members who are willing and able to pay your bills for more than a couple months?
- An average individual disability insurance claim lasts 31.6 months3
- An average group long-term disability claim lasts 34.6 months4
In the next few weeks, I’m going to dive into the disability insurance conversation. If you’d like to keep the conversation going now, however, check out our free resources at di.ashbrokerage.com. Or, schedule a time to talk to me directly.
1 Source: Social Security Administration, “The Facts about Social Security’s Disability Program,” January 2018: https://www.ssa.gov/disabilityfacts/materials/pdf/factsheet.pdf
2Source: Council for Disability Awareness, “The basics of the Social Security Disability Income Program.” October 2018: http://blog.disabilitycanhappen.org/the-basics-of-the-social-security-disability-income-program/
3Gen Re, “U.S. Individual DI Risk Management Survey 2011,” based on claims closed in 2010
4Gen Re, “U.S. Group Disability Rate & Risk Management Survey 2012,” based on claims closed in 2011
Let’s put things in perspective first: according to Genworth’s Cost of Care Survey for 2018, the annual national median cost of care in 2018 ranged anywhere from $18,720 to $100,000, depending on your needs. Breaking that down to monthly costs, that’s between from $1,560 - $8,364 a month to provide care for you or your loved one.
Where is this money coming from? How does this affect your portfolio? More importantly, if you need care for an extended period, how much will be left for your spouse to live on (or even fund their own care)?
Annual National Median Costs 2018
Homemaker Services:1 $48,048
Home Health Aide:1 $50,336
Adult Day Health Care:2 $18,720
Assisted Living Facility:3 $48,000
Semi-Private Room in a Nursing Home:4 $89,297
Private Room in a Nursing Home:4 $100,375
Now, let’s look at the cost of having a plan in place. If a 55-year-old couple were to purchase a $4500 monthly benefit, three-year policy adding inflation, the cost per month is just under $300. That would total $108k if paid for 30 years. Yes, $108 thousand sounds like a lot, but is it?
Since we wisely added inflation to the policy, our pool of money has grown to $393,216 per person!We spent $108k over 30 years to get $786,432 to spend on care.
The truth behind the numbers is simple. It’s more expensive NOT to have a LTC plan in place.
Don’t trust these numbers? I’ll get you your numbers, specific to you. #just ask
Genworth 2018 Cost of Care Survey, conducted by CareScout®, June 2018
1 Based on 44 hours per week by 52 weeks
2 Based on 5 days per week by 52 weeks
3 Based on 12 months of care, private, one bedroom
4 Based on 365 days of care
The best planning for long-term care is to amass long-term wealth, correct? Not really. If your clients are considering self-funding, you need to walk them through the numbers.
Take, for example, a 65-year-old married female in Texas. By repositioning $100,000 of her assets today, she can create a total pool of $507,819 in 20 years to spend on qualified long-term care expenses. P.S. Those benefits are tax free.
To me, this is a no-brainer!
Why would a client choose to use their own money when they could leverage it with insurance? Why pay full price when you can pay the discount amount? Do you self-insure your car? No, because why pay 100 percent of the costs if you don’t have to?!
Let’s not forget: Self-funding means leaving not much, if anything, to the loved ones left behind.
For a more in-depth conversation around leveraging your assets to fund LTC – Just Ask. Use my calendar link to schedule a time that’s convenient for us to talk.
Spouses share a lot of things – house, cars, kids, bank accounts. Why not long-term care insurance? Yes, spouses can choose a long-term care policy with SHARED coverage, giving them a pool of benefits they can split.
One of the unknowns with long-term care is predicting how long you will need benefits. While the average need for care is about three years, your clients could die before needing care. Or just the opposite, they could have a long-lasting condition, such as Alzheimer’s, and need care for much longer.
Sharing benefits is a great way to hedge bets when deciding on a benefit period. It may make a couple more comfortable with purchasing a shorter duration and can save them quite a bit of money.
On the other hand, a lifetime benefit pool covers both short and long-term risks and ensures both spouses are covered no matter the timeframe of coverage needed. Of course, this is a bit pricier. Your clients will have to consider the risks they’re willing to take – together.
For more information on sharing benefits, JUST ASK. Use my calendar link to schedule a time that’s convenient for us to talk.
Most advisor aren’t experts in long-term care. So it’s understandable if you struggle to explain the concept of linked benefit, let alone convince someone to purchase it. Especially when you’d rather be doing something else. Anything else!
But because long-term care can be so challenging, that’s exactly the reason it’s crucial to take the time to explain all options available. That may mean taking the time to educate yourself first.
Since linked benefit plans combine both life insurance or annuities with long-term care, you might think they’re complicated. However, that is not the case.
Essentially, a linked-benefit policy has three components:
It's an easy conversation to have if you’re a long-term care marketer like me, but not so much if this is not your everyday focus. Avoiding the conversation doesn’t have to be your default plan. If you have questions, JUST ASK! Use my calendar link to schedule a time that’s convenient for us to talk.
© 2018 Ash Brokerage LLC.