Are your clients underestimating the cost of medical care in retirement?Ask any insurance agent or financial advisor about the one factor that can derail even the most carefully calculated retirement plan, and he or she will likely say healthcare costs. According to Fidelity Investments, a couple who retired last year at age 65 will require approximately $260,000 to pay for medical expenses in their golden years.
While most people can reasonably estimate their living expenses during retirement, healthcare costs are harder to predict. Unfortunately, it’s also a subject that many refuse to consider. Yet a recent report from the National Association of Insurance Commissioners and the Center for Insurance Policy and Research concluded that Americans older than 65 will need an average of two years of intensive long-term healthcare during their lifetimes. Medicare would cover those costs for only 100 days.
Fortunately, insurance agents can offer a product that helps their clients pay for their healthcare expenses in retirement: long-term care (LTC) insurance. These policies pay for extended stays in a nursing facility as well as at-home assistance with daily living activities. LTC policies cover expenses for a fixed period of time (typically three years in a traditional LTC contract or one year for a short-term policy). Other options, such as hybrid life insurance/LTC policies, are also available.
While most policyholders won’t benefit from LTC insurance until much later in life, Kaplan Financial notes that clients and prospects entering their 40s are ideal candidates for it. It’s up to you to sell them now on its importance.
Asset Protection: Genworth’s 2016 Cost of Care Study reports that the median monthly outlay for a private nursing home room reached $7,698, up 1.24% from 2015. The cost of a room at an assisted living facility slightly rose, as well, increasing to $3,628 per month. In addition, an in-home health aide for 44 hours per week costs $3,861. Without LTC insurance, you clients must fund those expenses from their retirement assets. With an LTC policy, your clients transfer the risk of paying for healthcare to an insurance company, thereby preserving their financial security during retirement.
Buy Now: Since LTC premiums rise as individuals age, it’s best to purchase a policy at a younger age. According to the American Association of Long-Term Care Insurance (AALTCI), a shared policy for a couple age 55 costs $2,350 a year; in contrast, the same policy for 60-year-old spouses rises to $2,970. Waiting also increases the chances of being denied coverage. While AALTCI that found only 11% of applicants under the age of 50 had their policy requests nixed, the percentage soared to 17% for people aged 50 to 59, 24% for people 60 to 69, and 45% for those between 70 and 79. The sooner your clients purchase a LTC policy, the greater likelihood of getting approved for coverage and at a lower price.
Personal Experience: If your clients and prospects have ever cared for an aging parent, they understand the financial and emotional cost of caregiving. If not, you can relate stories of other clients who have coped with an ailing loved one. If you’ve had to care for an elderly parent yourself, you can talk to your clients about that struggle. Explain that LTC insurance alleviates much of that burden by ensuring that the policyholder will receive the healthcare they need need.
Your clients and prospects, especially younger baby boomers, may believe that they’ll remain healthy throughout their retirement. However, more than 50% of 65-year-olds will require long-term care, the NAIC estimates. By showing clients and prospects the probable cost of healthcare in retirement and its possible effects on their retirement plans, you can persuade them to buy long-term care insurance and craft a plan suited to their budget and needs.