By Mike Walters
AnnuityNews.com
Feb. 14, 2011 -- Long-term care is a huge personal fear, a financial disaster waiting to happen. And yet many feel the obvious solution of buying long-term-care insurance is more painful than the looming disaster.
And therein lies the problem with LTC insurance sales.
Consider these facts:
· The lifetime probability of becoming disabled in at least two activities of daily living or being cognitively impaired is 68 percent for people age 65 and older, according to “A Report to the Nation on Independent Living and Disability,” AARP 2003, Family Caregiver Alliance.
· The median annual rate for a private nursing home room is $206 per day which is $75,190 per year, according to “Genworth 2010 Cost of Care Survey,” Genworth Financial, April 2010.
· The cost for a single 65 year old to purchase a $240 maximum daily benefit with 3 year benefit period LTC policy at standard health rate is $4,867 per year, according to the 2009 National Long Term Care Insurance Price Index.
· Only 10% of the elderly have a private long-term care insurance plan, “The Market for Long Term Care Insurance,” National Bureau of Economic Research, 2005.
· An estimated 43.5 million people are “unpaid caregivers” to an adult family member or friend age 50 or older, according to “A Focused Look at Those Caring for Someone Age 50 or Older,” National Alliance for Caregiving in collaboration with AARP, November 2009.
· For the family caregiver forced to give up work to care for a family member or friend, the cost in lost wages and benefits is estimated to be $109 per day which is $39,785 per year in 2000 (assuming a 3% annual increase that is $147 per day which is $53,655 per year in 2010), according to “Can Aging Baby Boomers Avoid the Nursing Home?” American Council of Life Insurers 2000, Family Caregiver Alliance.
Now let’s string together the underlying meaning of the facts just mentioned: The odds are about seven in 10 that we will need some sort of long- term care. Assuming we need to go to a nursing home and don’t want to feel like we’re back living in a shared dorm room, it costs $75,000 per year, equaling $225,000 for three years with no increases. So with some rough averages, seven out of 10 seniors are at risk for up to a $225,000 hit.
The obvious thought is to insure such a risk.
A single 65-year-old may pay premiums of $4,867 per year for an appropriate policy. Over 15 years (to age 80, assuming no premium increases), that would be $73,000 in premiums, or about equal to one year’s stay in a nursing home. Sounds reasonable, yet only 10 percent have purchased an LTC plan.
So, as the statistics depict, it seems that the remaining 90 percent of the senior population has inadvertently shifted the burden (financial or otherwise) to family and friends to the tune of 43.5 million people serving in the capacity of a non-paying job and/or gave up a paying job to respect a family member in a “volunteer” capacity.
My contention is simply that there must be a more appealing way to solve this problem. When the odds are stacked seven out of 10 against you, and yet 90 percent elect not to buy the solution – something is wrong! Digging deeper yet, I believe a statistically large portion of LTC policies are sold to the “volunteers” who experienced things first-hand and do not wish to become such a burden on others.
So why does human nature by default (consciously or subconsciously) say “No” to LTC insurance?
To over-simplify, the client generally experiences two knee-jerk reactions:
1. It costs too much! (the money factor)
2. It won’t happen to me! (the denial factor)
Furthermore, traditional LTC insurance is positioned as an income statement sale. This process boils down to identifying how much income one has, and how much the sales person can pry-open-their-wallet-and-extract. Even with the best of sales techniques it is combative at its core.
On the other hand, asset-based LTC is a balance sheet sale. This process boils down to identifying one’s net worth and repositioning assets to derive a benefit that is otherwise nonexistent. This places you on the same team with the client as their expert trusted advisor rather than a salespest. Powerful stuff!
Here’s how the product category generally works:
1. Openly discuss the value and protection of LTC insurance, but equally discuss why so few people buy it even when they know they should. Talk about the fact that traditional LTC insurance is a “lose-to-win” program, meaning you must have your worst health fear come true in order to perform well financially on the LTC transaction.
2. Identify the client’s existing asset categories including a segment labeled “emergency money.”
3. Discuss the potential uses of their “emergency money” and establish that this would be their first source of funds should they need long term care of any sort.
4. Discuss the likelihood of their emergency money not being enough to fund such a health catastrophe.
5. Further discuss the evolution of what starts as a health catastrophe, but can quickly morph into a financial disaster for the other spouse and heirs.
6. Show how by repositioning one-third to one-half of their emergency fund to an asset-based life/LTC policy can improve their protection without any financial pain.
7. For example, a 65-year-old repositioning $100,000 may receive an immediate death benefit of $175,000 and an LTC benefit of $525,000.
8. Explain how the $100,000 of cash is now worth $525,000 for LTC-related services and if they never need LTC, their heirs will receive $175,000 income tax free vs. $100,000 in cash.
9. Circle back to the No. 1 bullet above and readdress the “lose-to-win” problem. Show how now it has become a “win-win-win” scenario. If you ever need the $100,000 cash for a different emergency it remains available for at least 15 years or longer. If you do in fact need the LTC coverage, your $100,000 cash is now converted to $525,000. And should you eventually die happy and healthy in your sleep, the $100,000 cash becomes a $175,000 death benefit for your heirs.
10. Take the application to submit and see what type of financial offer you receive from the carrier based upon your client’s age and health.
This concept allows you to take the negativity out of the LTC discussion. Now you can show your client how to simply reposition a chunk of money from one pocket to another pocket and receive a significant benefit in doing so. Plus, you are protecting their estate from the number one financial disaster that strikes down their net worth faster than anything else – the high cost of long-term care!
READER BONUS: To enjoy temporary online access and learn further in-depth analysis related to today’s topic you may visit www.usafinancial.net/AnnuityNews2010nov/.
Mike Walters is CEO of USA Financial, “the world’s only IMO, B/D, double RIA, and Cross-Platform Marketing Firm.” For professional level access to legendary free reports, audiocast, videocast and commentary, visit www.usafinancial.net.
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