Consumer Reports recently released a study that concluded, “for most people, long-term-care insurance is too risky and too expensive.” True as this may be, many people still find the idea of life without this safety net far more frightening than its costs.
The advisor who can find some middle ground on this conflict for his client can, of course, earn some fees on the sale of the insurance. But more importantly, he also earns a type of loyalty that it hard to come by.
What follows is a guide to LTC and why you should care about it.
Why Discuss LTC?
The potential lack of government help
Just as Social Security's dwindling assets have helped spawn increased interest in planning for retirement, so should Medicare's coming insolvency push concerned clients toward discussing long-term-care issues. There are early indications that the better care facilities are using an “ability to pay” test as part of the admissions criteria.
According to SRI Macro-Monitor, a research and consulting firm based in Menlo Park, Calif., only about one-in-thirty households has an individual LTC policy. With AARP's membership (35 million) now outnumbering the population of most countries, it seems likely that potential selling opportunities will only increase.
Open up the books
A decision over how to fund possible LTC expenses cannot be made without a complete analysis of clients' entire financial pictures. In the process, you will gain more insight as to how you can help manage their other assets.
Whether too optimistic or too pessimistic, clients are likely to be unaware of the exact cost of care, insurance and the likelihood of the need. It is your duty as an advisor to at least make sure they are aware of the facts.
Who Ya Gonna Call?
These people will likely have home, college and retirement needs funded. But an extended nursing home stay could derail any “golden years” objectives — for both an incapacitated person and a surviving spouse.
Financially-comfortable middle-agers may be helping out older parents with a few bucks here and there. But if a need arises for skilled care, a policy paid for by the younger folks could eliminate the dilemma of deciding between low-quality care for the parents and “back to zero” for the kids.
Policy premiums can be 100 percent tax-deductible to business owners. And certain employees can have policies purchased for them by the company, without a concern for the non-discriminatory issues that are a part of retirement plans.
These could be the ideal purchasers of LTC insurance — for their parents. Doctors usually have a high level of disposable income, are more likely to live too far away to provide in-person care for their parents and are painfully aware of the high cost of quality medical services.
Cutting Premium Costs
Regardless of how motivated your client is to discuss LTC, the premiums are likely to range from “surmountable hurdle” to “deal killer.” These tips can help your client afford the coverage:
Lower the benefit period
The average nursing home stay is about 2 1/2 years. Cutting the maximum benefit to say, four years, should cover most periods of care.
Raise the elimination period
Even if the worst projections come true, most middle-income seniors can pay several months of expenses out-of-pocket before the insurance kicks in.
Share the burden
Older clients may have grown children who are willing to help shoulder the premium expense. A solid LTC benefit can ensure the highest quality of care if the children aren't able to care for the parents themselves — even more so if the kids are scattered around the country and unable to closely monitor the competency of a particular facility.
By the time the need for LTC insurance is certain, it is too late to buy it. Regardless of the decision, evaluating options sooner rather than later will either save your clients money in unnecessary premiums, or they will thank you for making a potentially bad situation better.
Kevin McKinley is a CFP and vice president of investments at a regional brokerage and author of Make Your Kid a Millionaire — 11 Easy Ways Anyone Can Secure a Child's Financial Future. kevinmckinley.com