When LTC planning takes an unexpected turn

November is Long-Term Care Awareness Month — recognized since 1991 to highlight the emotional, physical and financial toll of long-term care and to encourage proactive planning. This month is an ideal opportunity to initiate the long-term care conversation with your clients. After all, the more informed they are, the better they can prepare.

A road map for LTC

LTC, also known as extended care, involves assistance with activities of daily living due to a chronic illness or cognitive impairment. This need can come on suddenly or progress over many years. Given that more than 50% of Americans are expected to need LTC at some point, every client should have a road map for their care, regardless of their financial or health situation. This plan should cover who will provide care, where it will be provided and how it will be funded. Proper planning can help clients maintain independence, choose preferred care providers, protect assets and reduce the burden on their loved ones. 

Living longer but not healthier

As a society, we’re living longer but not necessarily healthier. Chronic illnesses are on the rise, affecting some 50% of the U.S. population and accounting for 86% of health care costs.  Additionally, more than half of adults have at least one diagnosed chronic condition (arthritis, cancer, chronic obstructive pulmonary disease, coronary heart disease, current asthma, diabetes, hepatitis, hypertension, stroke, and weak or failing kidneys), and 27.2% of U.S. adults have multiple chronic conditions. Many of these chronic conditions eventually lead to the need for extended care.

The rising cost of care

The median cost of in-home care in the U.S. is currently between $5,700 and $6,300 per month, with projections reaching $12,000 to $13,200 in 25 years.  Since regular health insurance and Medicare do not cover long-term care costs, many clients opt to transfer some of this financial exposure to an insurance company in the form of long-term care insurance.

Exploring alternatives

As a financial professional, you will inevitably cross paths with a client who is ineligible for an LTCi policy. When applying for traditional LTCi, almost 40% of individuals between the ages of 65 and 69 and more than 45% of those over age 70 are declined for coverage. In the past, these clients didn’t have many other options. Today, however, clients who waited too long to plan or didn’t qualify for LTCi due to health circumstances have alternatives.

» Short-term care insurance. Short-term care insurance offers coverage for chronic care with simplified underwriting to individuals up to age 89. Short-term care has a shorter benefit duration (typically one year or less), which ensures premiums are more affordable than a traditional LTCi policy. STCi policies are flexible and typically cover care in the home, assisted living facilities and skilled nursing homes without requiring the policyholder to meet the 90-day certification that is typical for a traditional LTCi claim.  

» Annuity with LTC rider. Clients with significant chronic health conditions may benefit from using an annuity with LTC rider product, which is available to clients up to age 85 (or 87 with special permission). These products are usually simplified issue or guaranteed issue and require very limited underwriting. 

Structured as a single premium, old annuities that have gained value can be transferred to the contract via 1035 exchange. This option leverages your client’s tax burden from gains on a nonqualified annuity and allows them to transfer the contract tax-free into a long-term care solution.

» Medicaid-compliant annuity. A Medicaid-compliant annuity is a powerful spend-down tool designed to accelerate Medicaid eligibility for senior clients who are facing a costly nursing home stay. An MCA is a single-premium immediate annuity that converts assets into an income stream with zero cash value. When properly structured, this annuity allows your client to legally eliminate the excess countable assets preventing them from qualifying for Medicaid and accelerate their eligibility for benefits. 

An MCA is for clients who are already residing in a Medicaid-approved facility (typically, a nursing home) who have exhausted Medicare or LTCi benefits, are paying out of pocket and have excess countable assets.  

Your role in planning

Planning for long-term care requires a multifaceted approach. Your clients depend on your expertise and advice to guide them through the process.  If you want to expand your business and provide critical solutions to those in need, this Long-Term Care Awareness Month is the best time to dive into long-term care and the senior market.

Mary Sizemore, CLTC, is sales and administrative coordinator with The Krause Agency in De Pere, Wis. She has been a NAIFA member since 2022. Contact her at [email protected].