Offsetting the Cost of Care with Traditional LTC

Matt Stieglitz   |   February 2024   |   5-minute read
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A little goes a long way.

There are a lot of ways life might affect your clients' money. But while you’re ultra-focused on investment portfolios and retirement plans, there’s one aspect that could completely implode all your hard work.

Longevity. Specially, extended health care needs.

If your client experiences a long-term care need, how will they pay for it? Planning to self-fund? Bye-bye discretionary spending. Planning for family to come to the rescue? Caregiver burnout happens fast.

Many clients simply think long-term care is too expensive, or do not want to invest in a “use it or lose it” type product. But before you brush off the conversation, consider how a relatively small investment in a dedicated LTC policy could be a cornerstone for living a life of choice, independence and freedom.

How much does care cost?

The cost of care, either at home or in a facility, continues to rise. Genworth’s most recent Cost of Care Study, published in 2022, shows median costs for home care to be about $5,000 a month, with a private room in a nursing home costing about $9,000. That’s more than 3% higher than costs were the year before.

When to consider traditional LTC

An often overlooked option is to use a traditional LTC policy to help offset the rising costs of care.

Traditional LTCi is uniquely designed with a singular focus: providing comprehensive long-term care coverage.

Unlike linked-benefit policies, which combine life insurance or annuities with long-term care coverage, traditional LTCi dedicates its entire benefit to long-term care expenses. This specialized focus ensures that policyholders have access to a broader range of care options, including in-home care, assisted living facilities or nursing homes.

Let’s explore why your clients might choose traditional LTCi over linked-benefit policies:

1. Cost Effectiveness

For clients focused primarily on managing the potential costs of long-term care, traditional LTCi can offer a more cost-effective solution. Because it's designed solely for long-term care coverage, these standalone LTC policies typically provide more bang for your buck in terms of the amount of coverage per premium dollar — especially for those in good health at the time of application. It’s a great efficiency tool for prioritizing long-term care planning when clients do not need life insurance or annuity components.

Long-term care coverage insurance provides a financial safety net, helping clients protect their hard-earned assets from being eroded by the high costs of extended healthcare.

And a little goes a long way. Even a policy that covers $3,000 a month can go a long way to offset the cost of care, especially at the beginning of an illness. With a median cost of home care around $5,000, a policy offering $3,000 a month would cover more than half of the expenses and provide a huge relief for family members.

2. Choice and Flexibility

Nobody wants to go to a nursing home. Contrary to popular belief, a long-term care insurance policy will help give clients more options — not take them away. Traditional LTCi policies are known for more flexibility when choosing policy options, allowing a client to receive care at their own home or in a facility based on their preferences. Policyholders can tailor their coverage to fit their specific needs, including the choice of benefit period, daily benefit amount, and the inclusion of optional riders like inflation protection or cost of living adjustments.

In addition to policy flexibility, they offer lifetime payments, meaning the client doesn’t need to have a lump sum to fund the policy. This level of customization is often more extensive than what linked-benefit policies offer, allowing your clients to precisely align their coverage with their anticipated long-term care needs and financial goals.

3. Clarity and Simplicity

The straightforward nature of traditional LTCi makes it a clear and simple choice for many.

Without the added complexity of intertwining other financial products and goals, individuals can focus solely on planning for long-term care.

This simplicity can be a significant advantage in estate planning and asset protection, as it allows for more predictable outcomes and easier integration with other aspects of a financial plan.

4. Tax Advantages

Some LTC premiums may be tax-deductible, providing an additional incentive for clients to invest in this crucial coverage. For employers, deductions can be even greater.

Traditional LTC can also be funded with money sitting in a health savings account, something many clients do not even think to mention as an asset when meeting with advisors.

5. Pricing Stability

Today’s traditional LTC policies are more defined than those sold 10 or 15 years ago. Rarely are they designed to cover all the risk. More historical data on policy performance has to more accurate and stable pricing on policies being sold today.

What’s a good ballpark benefit amount?

When it comes to funding LTC, transferring even a portion of the risk to an insurer can be a huge benefit. In this case, something really is better than nothing. How much depends on where the client plans to retire and what they can afford. Most policies require a minimum amount of $50 per day, and it’s important to look at cost-of-living options. Care tends to cost less at the beginning, going up when more care is needed and varies greatly by region.

Talking with your client about their expectations is a great way to get started.

Why plan now?

You’ve heard it before — clients aren’t getting any younger, and most of them aren’t getting healthier, either. Planning early keeps a client’s offers open and makes them more likely to complete underwriting. And premiums cost more as clients get older — another reason not to wait.

Additionally, several states are considering legislation that mandates LTC coverage. Purchasing a plan, even a small one, means clients won’t use their money to satisfy state requirements. They’ll be able to get real benefits that are more impactful.

Protect assets. Create independence. Improve quality of life.

When it comes to planning for long-term healthcare needs, the primary goal is to retain control.

Traditional LTC isn’t for everyone, but the nuanced benefits of traditional LTCi deserve a conversation. Its specialization, flexibility, cost-effectiveness, simplicity, and undiluted focus on long-term care coverage make it an attractive option for those prioritizing their care needs in their retirement planning. Proposing even a small amount of coverage from a dedicated LTC policy could be the perfect soft approach you’ve been looking for.

For more pros and cons of today’s long-term care solutions, grab our LTC solution comparison sheet.

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