Leveraging Assets for Long-Term Care

On Thursday, August 8, we were pleased to welcome Jaime Mueller to our latest webinar to talk about asset-based long-term care coverage (ABLTC). As the population continues to live longer and more and more people expect to spend significant time in nursing homes or other care facilities at the end of their lives, long-term care insurance is becoming an increasingly important product.

To understand the power of ABLTC, you need to understand the broader long-term care insurance market. One end of the spectrum is the traditional, standalone LTC policy, which means the client pays an annual premium and gets fairly robust coverage for long-term care costs.  At the other end of the spectrum is a long-term care rider on a death benefit plan such as a life insurance policy.

ABLTC policies are right in the middle of the spectrum. The primary focus of the plan is on LTC, but it’s built on an asset (usually life insurance or an annuity) so that it’s not “use it or lose it.” Asset-based plans have a guaranteed premium and either guaranteed return of premium (ROP) or cash-surrender value (CSV).

Fortify offers a range of ABLTC policies from several carriers, and we’re frequently asked “what’s the best plan?” The short answer is that they’re all the best in certain circumstances. Some of the key factors to consider are the number of people to be covered (both single plans and joint plans for couples are available), age, tobacco use, benefit duration, premium duration, tax implications and return of premium.

The power of an ABLTC plan is that it provides robust coverage for long-term care costs in a highly customizable manner while avoiding or mitigating the drawbacks of standalone LTC policies. For example, while standalone LTC tends to have a lower “entry” premium, that premium will increase over time, whereas the ABLTC premium is fixed. There’s also the option to get the premium back, whereas standalone LTC is “use it or lose it.”

Depending on the type of assets the client has, an ABLTC plan can dramatically increase the value of those assets. For example, a poll several years ago found that a whopping 73% of people for annuities plan to use those annuities to pay for long-term care or illness-related costs, not for income. If you notice a client has an annuity, selling an ABLTC plan is as simple as asking, “Do you plan to use this annuity for income?” If the answer is “yes,” move on, but if the answer is “no, I plan to use it if I end up in a nursing home,” then rolling the annuity into an ABLTC plan can massively increase the available funds to pay for LTC costs.

More generally, when selling long-term care products, it’s important to assess the client’s priorities. Some people, perhaps those who are at risk for developing dementia or another degenerative condition, will want to maximize the total pool available for LTC costs. Others will want return of premium or cash-surrender value in case they change their mind. Asking the right questions makes it easy to compare different ABLTC plans and find the right fit.

However, the biggest competition for ABLTC isn’t another product at all; it’s cash. Clients with significant cash savings may consider themselves self-insured. The way to work through this situation is to help them understand leverage and tax-efficiency. ABLTC will give a much bigger LTC pool than cash, plus there’s still return of premium if the insured person doesn’t end up needing the LTC pool.

Traditionally, the market for ABLTC was pretty clear-cut: cash-strong retirees 65 and older with 50K to 500K in savings, or retirees in the same age range with qualified money (IRAs, annuities, etc.) who have similar cash strength. As recently as the last 12 months, though, this market has expanded dramatically. For pre-retirees in the 55-65 range who can afford to pay 5K to 50K annually, we can do an ABLTC plan with 5-pay to 10-pay to help them get it paid up when they retire. 

We can even construct ABLTC plans for younger professionals in the 40-50 age range with strong incomes who can contribute 5k to 50k annually (perhaps by using their annual bonus) with premium durations stretched out 10 years or even lifetime. This is an incredible opportunity to leverage their assets and build a large LTC pool while locking in a low premium. 

There is so much more flexibility and customization available in the ABLTC space now, and by asking the right questions and weighing the right options, you can create a really robust plan for your clients. If you missed the webinar, watch the recording above or contact us to speak with a Fortify protection specialist.