Retirement plan participants who don’t own a long-term care insurance policy and instead choose to self-insure for any LTCI needs in the future run the risk of seeing their life savings decimated by major medical expenses, cautions Jonas Roeser, senior vice president of marketing and operations for LTC Financial Partners LLC.

“If you’re not thinking about your own health as you age, think about the health of your 401(k) or IRA,” he posed in a recent news release. “If your retirement vehicle becomes disabled or loses life blood, how can it support you when you need it?”

Proponents of this product believe it’s a small price for consumers to pay for shielding such a large pool of savings from unforeseen major medical expenses, especially when so much has been at stake in a sluggish economy. For producers, it pays first-year commissions, plus renewal commissions for life, with Roeser explaining that “persistency is as high as 95% on LTC plans – people buy them and they keep them.”

Bill Grossman, a senior benefits consultant with the Cornerstone Group, a member of United Benefit Advisors, describes LTC plans as “the missing link to every financial planner right now … For many people, it’s their biggest asset, and spending a small amount of money can really protect a large amount of money in the event of a long-term care illness.”


Uncle Sam as enabler?

But several marketplace dynamics could be serving to undermine this product, which is offered on an employee-pay-all voluntary basis. As long as the federal government continues to pick up the tab on nursing home care for middle-class seniors, most Americans won’t pay for private LTCI, according to David Wray, president of the Profit Sharing/401(k) Council of America. “People get themselves declared indigent, and it’s one of the things that is busting Medicaid,” he explains, noting that Medicare also pays 100% reimbursement for short-term care in some circumstances.

There’s also an enormous divide when it comes to gender, with Wray pointing out that it’s a raw deal for men, whose average life span is about seven years shorter than women. “If you had a properly structured program, you’d have long-term care insurance for women only,” he says, adding that about 95% of nursing home patients are women.

Jesse Slome, executive director of the American Association for Long-Term Care Insurance, reports that 77% of those who purchase LTCI are married couples. He says the ones who have accumulated $150,000 or more in their 401(k) plans should be most concerned about depleting their savings and having to rely on Social Security.

Couples who do not own LTCI for whatever reason could always beef up the amount of life insurance benefits to provide a financial safety net for a surviving spouse. For example, Wray says a large term life policy can be bought in lieu of a joint-survivor annuity in order to avoid paying taxes.

Grossman acknowledges that LTC has been a tough sell in recent years, but is sanguine that the message is catching on among younger employee populations, noting that the average buyer’s age dropped to 52 from 66 in just the past two years. At the very least, he suggests that employers leverage their buying power to provide discounts, better underwriting and education “and let employees make their own decisions.”


Chase or be chased

Producers who ignore the LTCI area do so at their own peril, Grossman warns. “If you’re a health insurance broker and not talking about LTCI, someone else will come in behind you” and make the sale, he says. Offering education to clients on a consistent basis will translate into new business, he adds.

One icebreaker is for them to explain how the Community Living Assistance Services and Supports (CLASS) Act that was passed under health care reform is far inferior to private LTCI between paltry benefits and a five-year waiting period. Grossman is dismayed by the latter restriction at a time when more than 30% of LTCI claims are filed by active employees. Still, he hopes the new law raises awareness about the importance of purchasing financial protection.

Half of his clients buy LTCI more as a way to keep from being a burden on their families than to protect their assets. And with nursing home bills approaching $100,000 a year, he says it doesn’t take long to deplete a retirement investment portfolio that has taken decades to build. In a perfect world, he says everyone will be able to simply check off a box and salt away 1% or 2% of their pay for such events, “and if it can be done as part of a 401(k) plan, it’s even better.”

While it’s possible for 401(k) participants to purchase LTCI or life insurance coverage through their plan, Wray says there’s virtually no demand for such an arrangement, which would require a separate set of books that would complicate recordkeeping for plan sponsors.

The larger point for producers to remember is to help educate workforces to make an informed decision, according to Roeser. He makes an analogy to explain why it makes sense for retirement plan participants to purchase LTCI: “Like any other asset, 401(k) plans or defined contribution plans are nice vehicles for accumulation of wealth, but there is also a need for protection. Real estate is a vehicle for accumulating wealth – most people insure homes even if they are paid off.”

— Shutan is a freelance writer based in Los Angeles.

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