LTCi is Primarily "income Protection", More Than "asset Protection"
- Thread starter Mr_Ed
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- #2
Under current Medicaid rules, the community spouse can keep about $104,000 in savings, plus $500K in home equity, plus a car, personal items, etc. In other words, someone's spouse could easily qualify for Medicaid and they could still have a net worth of over $700k. Simply put, current Medicaid rules already protect a significant amount of assets for the community spouse.
However, Medicaid does not protect income (except if the community spouse's income is below the MMMNA.)
If you position LTCi as "asset protection" you are saying the same things that a Medicaid-planning attorney says.
However, Medicaid planning attorneys cannot protect their client's income (beyond the MMMNA limits--which is ridiculously low... about $2,700 per month (not $1,700).
If you think of LTCi as "asset protection" then your target market is mostly limited to those who have net worth significantly above 700k.
However, if you emphasize LTCi as "income protection" then your target market is anyone who has a spouse who needs more than $2,700 per month to live comfortably.
The LTCi industry is doing a disservice to many people by emphasizing the product as "asset protection." It is really "lifestyle protection" (aka "income protection") for the spouse who does not need care.
A married couple with $30,000 in savings and a mortgage, but a monthly income of $6,000 (from pensions and social security) needs LTCi more than a married couple with a $300k house that's paid for and only $3,000 per month in income. The second couple, in this example, could easily qualify for Medicaid, with little or no change in the lifestyle of the community spouse. In order for the first couple to qualify for Medicaid, the community spouse would see her household income drop from $6,000 per month to $2,700 per month.
Since most of a couple's income cannot be protected by Medicaid, LTCi's biggest advantage is that it protects one's income.
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With these statements, you are ignoring that fact that people do buy LTCi to avoid medicaid. They value the freedom of home healthcare. They want to be responsible for themselves as they have been all their adult lives. They do not want to leave this earth as a "ward of the state" and they want to leave their family with more opportunities in life (aka inheritance) not less. To say that anyone under $700,000 of net worth shouldn't look at an LTCi policy because as long as they are married they will qualify for medicaid quickly is short sighted at best. What happens to the asset rich couple when one of them becomes a widow. How fast will she qualify for medicaid then? She'll probably die before she ever qualifies and in the mean time she will have squandered all of her assets on paying for care and her grandson will have to pile on a load of debt to graduate medical school when he could have had it paid for.
I DO see your point, playing the angle of "income protection" as a selling point is a logical argument. However, I feel that you are ignoring the prospects point of view.
As we age, our assets/income relationship becomes the inverse of when we were younger. We become asset rich and income poor. Hence the $500,000 home (paid) and the $200,000 IRA with a $60,000/yr SS and pension benefit for a H/W typical LTCi prospect.
From the client's point of view, legacy and responsibility are their top priorities, not "income protection."
Look at it this way, if the client is younger and is still working and has an EARNED income and you sell him an LTCi policy on the basis of "income protection" and he goes on claim (obviously not working or earning) and what if he earns $2/$1 of his spouse, her lifestyle has dramatically changed even with an LTCi policy.
Take another example of a couple with UN EARNED income (retirement benefits, SS). In this case, yes an LTCi policy would protect income but how do you build your case around that? Do you feel comfortable looking your clients in the eye and saying I want you to pay me $6,000 per year (1 month of your income) so just in case one of you needs LTC it will protect that half of the income. You are going to find a lot of prospects telling you they would rather "roll the dice."
A more compelling argument is to take that couple with $700,000 of net worth and look them in the eye and say "It will cost you less than 1% ($6,000 annual premium) of your total net worth to insure yourself from the high costs of LTC. Even in this economy, if you are only earning 3, 4, 5% on your assets, is it worth it to you to take less than 1% of that to ensure that 40 years of your blood sweat and tears won't be flushed down the drain to a nursing home, to ensure that your family will benefit from the fruits of your labor, to ensure that you will never become a "ward of the state," to ensure that you will never be a burden on your family, to ensure you have the freedom to get the best care, etc., etc., etc..."
For your argument to work effectively you need prospects with high un-earned incomes (aka seniors) and low assets. That is a very, very, very, low subsect of the population. I think when it comes to building a case for LTCi agents and prospects are going to feel much more confident with the asset protection model.
But who am I to say, I'll let the forum decide.
First define what type of income you're talking about protecting? Is it:
Wages and Salaries Topic 401 Interest Received Topic 403 Dividends Topic 404 Business Income Topic 407 Capital Gains and Losses Topic 409 Pensions and Annuities Topic 410 Pensions – The General Rule and the Simplified Method Topic 411 Lump–Sum Distributions Topic 412 Rollovers from Retirement Plans Topic 413 Rental Income and Expenses Topic 414 Renting Residential and Vacation Property (formerly Renting Vacation Property and Renting to Relatives) Topic 415 Farming and Fishing Income Topic 416 Earnings for Clergy Topic 417 Unemployment Compensation Topic 418 Gambling Income and Losses Topic 419 Bartering Income Topic 420 Scholarship and Fellowship Grants Topic 421 Social Security and Equivalent Railroad Retirement Benefits Topic 423 401(k) Plans Topic 424 Passive Activities – Losses and Credits Topic 425 Stock Options Topic 427 Traders in Securities (Information for Form 1040 Filers) Topic 429 Exchange of Policyholder Interest for Stock Topic 430 Canceled Debt – Is it Income or Not? Topic 431
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Partnership.......
- Thread starter
- #6
No, I'm just trying to figure out your assumptions. Give me an example so I can understand it better. I don't sell LTC and don't have the knowledge you do on it.
Thanks,
- Thread starter
- #8
Salem,
Here's the example I gave above:
A married couple with $30,000 in savings and a mortgage, but a monthly income of $6,000 (from pensions and social security) needs LTCi more than a married couple with a $300k house that's paid for and only $3,000 per month in income. The second couple, in this example, could easily qualify for Medicaid, with little or no change in the lifestyle of the community spouse. In order for the first couple to qualify for Medicaid, the community spouse would see her household income drop from $6,000 per month to $2,700 per month.
To understand the value of LTCi and when LTCi makes sense, it's important to understand how someone qualifies for Medicaid. In order to qualify for Medicaid, someone has to pass an "asset test" as well as an "income test". You can learn more about that at www.elderlawanswers.com
Focus,
I don't disagree with you about LTCi being asset protection. But, essentially what you've stated is the same-old same-old stuff that LTCi trainers have been preaching to LTCi agents for years now... and guess what, it hasn't worked.
A very small percentage of the LTCi target market cares about "legacy". But, most do care about independence and freedom of choice and LTCi helps with that; and they care about maintaining their lifestyle.
But most agents overlook the importance of LTCI protecting income (which means, protecting the lifestyle of the healthy spouse.) That is really where the rubber meets the road for most of the people for whom LTCi is appropriate.
It's not an "either or" proposition. LTCi can do both. It can help to protect assets and it can help to protect income. But most agents only focus on the asset protection side and never even mention the other. Some clients will choose to own LTCi for "asset/legacy protection", some will choose LTCi for "income/lifestyle protection". Some will choose LTCi for both reasons. The point is that we do a disservice to our clients by emphasizing only one and not the other.
The income rules are a little harder than the asset rules, so it can be harder to explain them to our clients. But, it's well worth the time.
If anyone on the forum ever has the opportunity to take the CLTC course, I highly recommend it. It does a great job of explaining Medicaid qualification.
Here's the example I gave above:
A married couple with $30,000 in savings and a mortgage, but a monthly income of $6,000 (from pensions and social security) needs LTCi more than a married couple with a $300k house that's paid for and only $3,000 per month in income. The second couple, in this example, could easily qualify for Medicaid, with little or no change in the lifestyle of the community spouse. In order for the first couple to qualify for Medicaid, the community spouse would see her household income drop from $6,000 per month to $2,700 per month.
To understand the value of LTCi and when LTCi makes sense, it's important to understand how someone qualifies for Medicaid. In order to qualify for Medicaid, someone has to pass an "asset test" as well as an "income test". You can learn more about that at www.elderlawanswers.com
Focus,
I don't disagree with you about LTCi being asset protection. But, essentially what you've stated is the same-old same-old stuff that LTCi trainers have been preaching to LTCi agents for years now... and guess what, it hasn't worked.
A very small percentage of the LTCi target market cares about "legacy". But, most do care about independence and freedom of choice and LTCi helps with that; and they care about maintaining their lifestyle.
But most agents overlook the importance of LTCI protecting income (which means, protecting the lifestyle of the healthy spouse.) That is really where the rubber meets the road for most of the people for whom LTCi is appropriate.
It's not an "either or" proposition. LTCi can do both. It can help to protect assets and it can help to protect income. But most agents only focus on the asset protection side and never even mention the other. Some clients will choose to own LTCi for "asset/legacy protection", some will choose LTCi for "income/lifestyle protection". Some will choose LTCi for both reasons. The point is that we do a disservice to our clients by emphasizing only one and not the other.
The income rules are a little harder than the asset rules, so it can be harder to explain them to our clients. But, it's well worth the time.
If anyone on the forum ever has the opportunity to take the CLTC course, I highly recommend it. It does a great job of explaining Medicaid qualification.
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- 924
Actually, the key to selling LTCI is neither asset nor income protection.
It is family protection.
I have a client who will not consider long term care "because I live with my daughter and when the time comes she will care for me."
My response: "Oh really? And will she be lifting you into the bathtub for your baths? And 'when the time comes' will she be changing your diapers?
And when the stress, physical work, and financial burden destroys her health and any chance she has for a happy future, how will you feel about that -assuming at that point you are able to even recognize what you are doing to her?"
People don't much care about the facts and figures and whether they will or will not have assets protected. What they really care about once they are forced to face it, is the family dynamics.
Give them some facts: A new study shows that family caregivers are much more susceptible to stress related illness, like heart disease. Family member who are caregivers to older family members also have about 3 times the suicide rate.
Numbers don't sell LTCI, dad's dirty diapers sell LTCI.
It is family protection.
I have a client who will not consider long term care "because I live with my daughter and when the time comes she will care for me."
My response: "Oh really? And will she be lifting you into the bathtub for your baths? And 'when the time comes' will she be changing your diapers?
And when the stress, physical work, and financial burden destroys her health and any chance she has for a happy future, how will you feel about that -assuming at that point you are able to even recognize what you are doing to her?"
People don't much care about the facts and figures and whether they will or will not have assets protected. What they really care about once they are forced to face it, is the family dynamics.
Give them some facts: A new study shows that family caregivers are much more susceptible to stress related illness, like heart disease. Family member who are caregivers to older family members also have about 3 times the suicide rate.
Numbers don't sell LTCI, dad's dirty diapers sell LTCI.
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dam thats old school
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that course ie EXPENSIVE.
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