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Reassessing Long-Term Care Insurance

Reassessing Long-Term Care Insurance

Few clients have it, but many could use it. It's up to you to help them properly evaluate the costs and benefits.

One of the most pressing questions you should be answering from your boomer clients is, “What do you think about long-term care insurance?”

Your response will probably fall somewhere on a spectrum between “I have helped dozens of people just like you decide if, when, and how they should buy it,” to “What's long-term care insurance?”

Regardless of your knowledge of and experience with long-term care insurance, here are several less-conventional concepts to help your clients arrive at the optimal conclusion.

Unaffordable, or Unnecessary?

It's not the advisor's place to rule out the clients' need for long-term care insurance. Rather, it's better to offer an opinion, after laying out the basics.

But an asset-based rule of thumb is that older clients with less than $200,000 or so in liquid funds may find the cost of the premiums too much to bear.

Those with portfolios of more than $2 million may have enough to pay out-of-pocket for almost any necessary care, regardless of the level or length required.

The Millionaires in the Middle

But the majority of your clients will likely have assets in amounts between these figures, or have an interest in long-term care insurance that is irrespective of their assets and income.

For this significant segment, there are several recent developments that should move the topic of long-term care insurance to the top of the typical older client's financial agenda.

The first is, the volatile stock market and tiny yields on safe investments have meant that clients who once planned on paying for care out-of-pocket may not be able to generate a sufficient, predictable sum from their portfolio without dipping into principal.

In a related note, federal, state, and local public budget constraints have made it less likely that Medicare and Medicaid will provide funds for a level of long-term care that will satisfy clients and their families.

Finally, the number of insurance companies offering long-term care coverage to new applicants is dwindling, making the market likely to be less competitive and more expensive to those who wait to purchase the coverage.

It's Not a Waste of Money

The National Clearinghouse for Long-Term Care Information says that about 70 percent of Americans over the age of 65 will require some form of long-term care before they die.

Yet despite that likelihood, many clients express a common objection to long-term care insurance: They are concerned about paying real money in premiums for a policy that may not be needed soon, if ever.

But that's an incongruous attitude for clients who probably have health, homeowners, auto, and life insurance policies, and don't get angry if catastrophe fails to strike while they're paying for these other kinds of coverage.

Not a Lifetime Commitment

Clients might also shy away from obtaining a policy in their 50s or 60s for something that they may not use until they're in their 80s or 90s — if at all.

But instead of trying to project for a need 30 years from now, they should look at long-term care insurance as a 30-day proposition.

Once they qualify for coverage, they can establish a monthly premium payment plan. Every 30 days, they can decide if they want to continue the coverage, and can afford the premiums.

If the answer to both questions is “yes,” they send in the check, and then have a month's worth of coverage, and an equal amount of time before they send in another payment.

Even clients who opt toward putting a lump sum into a “hybrid” policy (i.e., one that combines long-term care insurance with life insurance and/or an annuity) can still benefit from the death benefit or accrued cash value if they eventually decide they don't want or need the long-term care coverage component.

Caring for Brain and Body

Many prospective buyers of long-term care insurance may envision the coverage helping to offset the cost of a nursing home stay precipitated by a physical health event, such as a broken hip suffered in a fall.

But according to the Centers for Disease Control, the majority of nursing home stays last less than a year. Even at the higher end of the range, expenses for this type of care can be covered out-of-pocket by most of the clients who can afford long-term care insurance premiums.

What can cause a much more serious drain on finances is a diagnosis of dementia or Alzheimer's disease. The annual cost for a private room in a nursing home for a patient suffering from this type of ailment is $83,220, according to the 2010 MetLife Mature Market Study.

Not only is the cost of this care much more than the usual nursing home or assisted living expense, but the length of care needed for this unfortunate condition is likely to extend way beyond just a year or two.

There are two steps that can ensure long-term care insurance can cover the needs of patients with dementia and Alzheimer's, but still be affordable for the typical retiring client.

First, the “elimination period” (i.e., the length of care required before the insurance kicks in) should be as long as possible — at least 180 days.

The premium money saved by the longer elimination period can be used to buy more years of coverage — ideally, five years or more, and 10 to be on the safe side.

The benefits last a lifetime — and beyond.

Long-term care insurance can help pay for care that may not be covered by public assistance, expanding options for clients at the most urgent point of their lives.

But the payouts can also protect assets that are needed for surviving spouses, or desired by prospective beneficiaries.

In fact, maybe the kids and grandkids are the ones who should be buying the long-term care insurance for your clients.


Kevin McKinley CFP is Principal/Owner of McKinley Money LLC, an independent registered investment advisor. He is also the author of the book, Make Your Kid A Millionaire (Simon & Schuster), and provides speaking and consulting services on family financial planning topics. Find out more at

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