Retire Safe & Tax Free - Scary LTC Facts

Long-term care is a huge personal fear... A financial disaster waiting to happen, and yet many feel the obvious solution, buying long-term care insurance, is more painful than the looming disaster.

Consider these facts:

  • 70% of people over age 65 will require long-term care insurance in their lifetime. The national average cost for nursing home care is $7,543 per month ($90,520/year)
  • The national average cost for full-time home healthcare is $15,330 per month ($183,960)
  • Women need care longer (on average 3.9 years) than men (on average 2.2 years) mostly because women usually live longer.
  • More than one in six Americans working full or part-time report assisting with the care of an elderly or disabled family member, relative, or friend. Caregivers working at least 15 hours per week said it significantly affected their work life.
  • In 2010, 40% of those who received long-term care services were between the ages of 18 and 64. Trends show that people are starting to prepare for long-term care expenses earlier in life. In 2010, the average age of a person with LTC protection was 61.
  • 7.6 million Americans age 55 and older have private long-term care insurance, accounting for 10.7% of adults in this age group.

Let's put all of that together to understand the meaning of those facts…

The odds are about 75% the baby boomers 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 cost $90,520 per year, equaling $271,560 for three years with no increases. So, about 75% of baby boomers are at risk for taking up to a $271,560 hit.

Yet only about 10% of the population has taken steps to cover this risk.

The statistics therefore depict that the remaining 90% 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 nonpaying job and/or gave up a paying job to respect the family member in a "volunteer" capacity.

Digging deeper, we believe a statistically large portion of LTC policies are sold to the "volunteers" who experienced 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 oversimplify, 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 TLC insurance is positioned as an income statement sale. This process boils down to identifying how much income one has, and how much the salesperson can pry open their wallet and extract. Even with the best the 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.

At this point we openly discuss the value and protection of LTC insurance, but generally discuss why so few people buy even when they know they should. Moreover, the 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.

  1. Identify the client's existing asset categories including a segment for cash. We refer to this as the asset wheel.
  2. Discuss the potential uses of their "lazy money" and establish that this would be the first source of funds should they need long-term care of any sort.
  3. Discuss the likelihood of the cash/emergency money not being enough to fund such a health catastrophe.
  4. Further discuss the evolution of what starts as a health catastrophe, but can quickly morph into a financial disaster for the other spouse and/or heirs.
  5. Show how by repositioning 1/3 to ½ of their emergency fund to an asset based life/TLC policy can improve their protection without any financial pain.
  6. For example, a 60-year-old female repositioning $100,000 may receive an immediate death benefit of $210,000 and a TLC benefit of $651,000.
  7. Explain how the $100,000 of cash is now worth $651,000 for TLC related services and if they never need LTC, their heirs will receive $210,000 income tax-free vs. $100,000 in cash.
  8. Circle back to the number one bullet above and readdress the "lose-to-win" problem. Show how it has become a "win-win-win" scenario. If you ever need the $100,000 cash for different emergency/opportunity it remains available through a "no regrets" option1. If you do in fact need the TLC coverage, your $100,000 cash is now converted into $651,000. And should you eventually die happy and healthy in your sleep, the $100,000 cash becomes a $210,000 death benefit for your heirs.
  9. 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 us to take the negativity out of the LTC discussion. Bottomline: Show the 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 retirement and estate from the number one financial disaster that strikes down their net worth faster than anything else – the high cost of long-term care!