How to protect workers’ retirement with LTC benefits

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Despite its ability to protect employees’ livelihood and provide a substantial tax deduction to companies, long-term care insurance is the most overlooked benefit product on the market. Long-term care is a niche product which few consultants offer, which creates a blind spot that leaves Americans open to huge financial and medical risks.

Long-term care insurance is the most effective solution to fill the gaps in most retirement plans, as well as protect young Americans’ future lifestyles against financial strain. It’s also an accessible option, as smart employers can offer it at no cost as a benefit to their employees and healthy individuals can qualify independently at a low cost.

The company pays for the policy in its entirety and it usually provides a tax deduction benefit, depending on corporate structure. Policies are a non-taxable benefit for the employee; neither the premium nor policy payout are reported as taxable income.

This product can be set up to offer a variety of benefit structures dependent upon each individual employee’s experience level and tenure. Some clients prefer to offer junior staff a basic coverage package, with the option to purchase more at an additional cost, and provide a premium, “Cadillac” policy to key executives. Company owners and key executives are typically at, or near the age of retirement and are particularly concerned about impending care costs. Employees can carry the plan into their next chapter after they leave the company.

An added benefit of employer-sponsored plans that insure a large group of people is they are typically considered a guaranteed issue. They are more inclusive and generous than what individuals would secure on their own. Guaranteed issue plans will pay out for physical, mental or other health issues related to long-term care without question, and extend coverage to all employees regardless of health status and need.

Vital for retirement security
Seventy-percent of Americans over the retirement age will require long-term care services, a statistic that is unlikely to diminish over time. Chronic issues and injury are the result of years of damage to the body during day-to-day life, and catch up to you with age. On average, the cost for one year of long-term care services ranges from $50,000-$80,000, according to Genworth, and can cost even more depending on the skill level and services required and the geographic region.

Also see: EBA’s 2017 Most Influential Women in Benefit Advising.”

Comprehensive plans must account for every possible financial commitment the retiree will face to guarantee a successful retirement. Only 20% of Americans have either short-term or long-term disability insurance, according to a recent survey from the Million Dollar Round Table. Of those with insurance, less than 39% believe it would be enough to cover both long-term care and medical expenses in the event of an accident, according to MDRT. Unanticipated need for long-term care can cripple the fixed income and deplete retirees’ financial assets. Due to finite resources, chronic issues and disability put their entire livelihood on the line.

A client with $1 million in an IRA account might feel covered in terms of medical care and does not purchase long-term care insurance. If this client needs long-term care, the cost will be deducted from their investment account in addition to minimum distributions paid out for living expenses. Because this additional money is subject to additional taxes, they will also withdraw additional funds to cover taxes and any fees. In as little as four to five years, the added $50,000-$80,000 per person per year would completely drain their $1 million investment account.

The potential risk could not only ruin a lifetime of retirement savings, but can also squander away children’s inheritance and financial legacy. A long-term care policy is no different than a mortgage; clients pass off financial risk to a company for pennies on the dollar and are able to secure assets — from homes to security.

Despite perceptions that only senior citizens require long-term care services, millennials comprise the second largest user age group. Of the 35% of patients in nursing homes below age 65, the heaviest user group is age 18-35, according to the Department of Health and Human Services. Often without coverage or assets, they rely on family members for care and finances and typically remain on welfare long-term. Investing in long-term care insurance at a young age is not only a key element of a retirement plan, but is an investment for clients’ future lifestyle and wellbeing.

Young people are in the best position to qualify and purchase high quality, inexpensive long-term care policies that will carry throughout their entire lives. Although some try to calculate the timeframe when they’ll need the coverage and delay purchase, this doesn’t account for accidents or unknown diseases. The likelihood they will use the coverage is greater than 70%, according to Genworth; it makes sense to buy it at the cheapest possible price in advance. At a later age, prices skyrocket. Those in their 60s and 70s can spend up to $10,000 per year to cover the premium.

Protecting agents against loopholes
Although long-term care insurance is an attractive and necessary benefit, few agents use it. They either feel it’s too complicated, or that few of their clients will buy it. However, agents who do not offer long-term care products at the consultation phase open themselves up for legal action as they’re not providing every possible option for clients to financially protect themselves.

The industry holds agents and advisers accountable to address all of their client’s potential needs during consultations, which includes the likely need for long-term care insurance. If a client isn’t covered and depletes his financial accounts, the family could sue the agent, because he or she did not act in the client’s best interest. Errors and Omissions agreements won’t cover the settlement — which typically costs between $2-3 million — in the case of fraud.

If long-term care isn’t your area, or is a product you don’t want to offer, protect yourself from this risk and have clients sign an acknowledgement waiver. My book, Long-Term Care: Alternatives and Solutions, serves as a primer for agents that want to learn more, or share real-life stories with their clients. The examples I share will help them understand how long-term care should fit into their overall financial plan. All proceeds from the book benefit the Million Dollar Round Table Foundation, to help give back to underserved communities across the world.

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