Planners Have A Fiduciary Obligation To Recommend LTC Insurance

By Harley Gordon

One risk that threatens the best-thought-out retirement plan, but is often overlooked, is the risk of long-term illness.

Financial planning traditionally focuses on investing assets in such a manner as to preserve a familys lifestyle at retirement, taking into consideration continuing obligations (education of grandchildren, dependent adult children, etc.). Assets are allocated to provide for those specific needs based on many factors, including current age, risk tolerance, and estate planning.

Missing from this time-honored model is consideration for the risk of long-term illness. Failure to understand what long-term care is, how it is financed, and the resulting impact on lifetime savings, exposes clients to potential financial ruin, and planners to lawsuits for breach of fiduciary obligation. This article deals with the profession of long-term care and why financial professionals must understand both it, and the role LTC insurance plays in a responsible retirement plan.

Take a moment to review the mission statements of the established designations in the financial planning and insurance fields. There is little, if any, mention of establishing a dialogue with clients about the risks of long-term illness and how it should be dealt with in a financial plan. Yet, it is the number one threat to retirement income and the preservation of principal upon which that income depends.

Twenty-five years ago no one heard of, let alone used, the term “long-term care.” Why bother? If you had a stroke or heart attack, you simply died. A diagnosis of cancer was tantamount to a death sentence. Few heard of Alzheimers disease. Living to age 75 was a singular accomplishment. Today, the first thing people say when a friend or colleague dies at 75 is “he was so young!”

We have, in the period of a generation, solved the problem of keeping people alive for long periods of time. What we havent figured out is how to keep them healthy. Everyone expects to live a long life. Simple logic dictates that the longer one lives, the more likely the need for care increases. My 25 years of experience in elder law shows all too often that clients understand this more than financial professionals.

Financial planners have failed to address this reality and the impact it has on a clients financial plan, primarily because they themselves do not understand the profession of long-term care. What mention there is of the subject is raised by a family, and usually ends with the off-handed remark that “you can self-insure.” It does neither the profession nor the client justice to slide over the subject or hope it doesnt come up.

Long-term care is a continuum of care housing and services all of us will need if we live long enough. The goal is to maintain independence in the world we have created for ourselves as reflected in our home and community.

Generally speaking, long-term care consists of home care, adult day care, assisted care living, and skilled nursing home facilities. Regardless of where it is delivered, long-term care is overwhelmingly custodial in nature. That is, it has to do with assistance with activities of daily living (see figure 1).

Understanding how long-term care services and housing are paid for has a critical bearing on recommending the right investments and insurance to cover what your client recognizes as a likely occurrence. The obvious players in the financing arena are not so obvious when investigated.

For example, the Veterans Administration provides little if any assistance for home care, adult day care, assisted care living, and skilled nursing home facilities unless the veteran has at least a 50% service-related disability. Even then, a financial assessment is made. Ask any veteran if he or she wants to rely on the VA to provide for them.

The stated objective of Medicare is to pay for skilled care, not custodial care. Period. It is beyond the scope of this article to go into the Medicare program. It is both reasonable and prudent to state however, that Medicare will not pay for custodial care at home, nor will it pay for adult day care, assisted care living, or skilled nursing care past 100 days.

Medicaid is welfare, the payor of last resort. The program covers exactly the same services as Medicare, with two important additions–prescription drugs and custodial care in skilled nursing homes. Many believe due to the proliferation of Medicaid planning seminars that this program will pay for long-term care services and housing. With the notable exception of skilled nursing home care, Medicaid pays little, if anything, for home care, adult day care, and assisted care living.

Long-term care insurance pays for the entire continuum of care. The product however, is only effective if properly integrated into the clients overall financial plan.

The recommendation of appropriate daily benefits, length of benefit, and elimination period is critical. Therein lies the problem–no professional is going to recommend a product if he or she does not understand the role it plays in a clients life, its competitiveness in the market, and how to properly implement it.

The financial planning industry must make a commitment to educate their members about the profession of long-term care and the critical role LTC insurance plays in a clients financial picture. Failure to do so relegates this critical product to an afterthought, creating future problems for clients, their family and the financial planner.


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 13, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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