Advisors generally have specialties. Their practices cater to a gamut of niches, from attorneys and physicians to movie stars, business owners, and nonprofits. But there’s one factor all advisors have in common, no matter what their client base: their clients are aging. So sooner or later, the issue of long-term care insurance is bound to come up.
If your practice isn’t centered on the elderly, you may be thinking that that’s not really a problem. You don’t need to worry about eldercare issues just yet. Most of your clients are in their forties or early fifties–or perhaps even younger. However, the average age at which someone will purchase a long-term care policy has been steadily going down: According to Lynn Boyd, senior director of long-term care issues at American Council of Life Insurers (ACLI), there has been a significant change in the average age of the person buying an LTC policy; where it had been 65 only a few years ago, it has now dropped to 60 or below. That means that there are quite a few folks out there well under age 60 who are buying policies.
Awareness of long-term care insurance as an issue is growing. Now that the federal government has seen fit to introduce its own Long Term Care Insurance Program (LTCIP), an initiative that offers coverage to a potential market of 20 million federal employees, members of the military, and their extended families, more people than ever are hearing about LTC and the need for it. And as boomers age and realize that they must find or provide care for their own aging relatives, it’s popping up on more and more radar screens every day. If you haven’t yet, you almost certainly will be consulted on whether a client should buy coverage–and if so, how much, when, and how.
To Buy or Not to Buy
Unless an advisor has made it her business to thoroughly investigate the marketplace for LTC policies, however, it can be bewildering. Not only are policies changing, there are planning uses for long-term care insurance that you might not have considered. LTC policies don’t just guard against health risks; they can be used to protect assets, aid in estate planning, help retain valued employees, and offer attractive and tax-effective incentives in executive compensation. Yet LTC insurance is not for everyone, and those with clients of relatively low net worth may best render their clients service by advising them not to buy a policy at all. The cost is, after all, significant–and growing. Chris Tuttle, a planner in New York with a broad financial background who has focused on eldercare and insurance, argues that a person in the $300,000 to $3 million net worth range is a good candidate for long-term care insurance. A person with assets below that level, however, should consider spend-down options, according to Tuttle. “If you’re above $3 million to $4 million with a fair amount of liquidity, you can probably consider the possibility of self-insurance,” he suggests.
Not all those rendering advice, such as attorneys and insurance agents, have considered whether LTC insurance is a suitable planning tool, so it often falls to financial planners to take the lead. Rob Davis, whose Chandler, Arizona-based company, Long-Term Care Quotes (www.ltcq.net), has been advising planners and individuals for seven years on buying LTC policies, tells of a 72-year-old man and his 69-year-old wife who were advised by their attorney not to buy LTC insurance, even though they had approximately $800,000 in assets and owned their own house outright. The attorney advised them instead to spend down and plan to go on Medicaid. Davis points out that the couple would have to reduce that $800,000 to a mere $2,000, and whichever spouse did not receive Medicaid care would only be allowed to retain $80,000 in assets–a far cry from the couple’s current status. There is also the issue of quality of care. As government studies repeatedly point out, those confined to nursing homes–the only extended care, with rare exceptions, that Medicaid will pay for–are frequently subjected to neglect, abuse, and worse.
The Latest Trends
There are changes in the long-term care marketplace and in the policies themselves, and there are new strategies for using LTC. Marketplace changes include the looming presence of the federal government and its above mentioned LTCIP that has led to a wider awareness of the issue among the general population. Moreover, the federal program has provided selling opportunities for companies other than MetLife and John Hancock, partners in Long-Term Care Partners, a joint venture formed specifically to administer the federal program. The reason is that while LTCIP is comprehensive and rates “an 8 to 8.5 on a scale of 10,” according to John Ryan, an independent insurance consultant to advisors based in Highlands Ranch, Colorado, it “doesn’t do some things most other plans do” and can be considerably more expensive. In fact, says Ryan, “if someone’s in good health, they’re better off with another plan.” The government plan does not give discounts for good health or for married couples; this can add up to a substantial cost differential.
In addition, LTCIP pays only 75% of home health care costs, while many individual policies pay 100%. The number of insurers encouraging home health care is growing all the time, as companies realize that such care is both cheaper to provide than nursing home care, and many times is all that’s needed. Long-Term Care Quote’s Davis says that there’s a positive trend toward encouraging home care. Ten years ago, he points out, the industry was so fearful of fraudulent claims that it discouraged people from staying home. Now the industry has realized that the cost of keeping someone at home is half that of a nursing facility, so new policies are offering extensive coverage for care at home, home modification, and medical alert systems.
There are other differences worth noting between the federal plan and private policies; a good comparison is available at Davis’s Web site (http://www.ltcq.net/index.php?action=fedplan&web_Session=cfa0dfcfdb1aa093caf9f45078d43518). Information about LTCIP itself can be found at http://www.opm.gov/insure/ltc.
Because of this federal initiative, other LTC carriers are in the unique position of having the government educate people about the need for LTC insurance and then being able to offer an alternative, often at lower cost, with comparable benefits. Advisors should be very aware of the federal program, however, because it is another option and the benefits, if not the best, are good.
There are also changes in underwriting; companies are getting tougher. “It’s an actuarial decision,” says Davis; it’s harder to qualify for an LTC policy, and the costs are increasing, though Davis notes that companies are trying to avoid having to admit that they have had to raise rates on policyholders. “It’s death,” he says, “when a competitor says, ‘You don’t want to go to X company, because they had to raise their rates.’”
As a result, Davis says, companies are starting out with higher premiums on new-generation products–”10%, 15%, 20%, in some cases 40% higher than what their earlier generation product was so that newer buyers are helping subsidize earlier blocks of business.” However, says Davis, the newer policies are richer in benefits, a trend he says has been growing for 10 years. “Every generation gets richer, bigger, better on what the policies will cover, how much, when.” But Davis has also seen some sticker shock on the part of consumers and as a result, some companies are putting out streamlined, less expensive products.
The Underwriting on the Wall
Davis also has noticed insurers offering lower premiums for married couples. “Actuaries have had enough experience now to look at claims and see that married couple claims will be filed much later, if at all,” Davis says, and to a smaller degree than by someone who is single. TransAmerica Occidental offers a significantly discounted new product, TransCare Options, he says, designed for married people. “From an actuarial standpoint, you can’t blame them.” He explains that actuarially, the husband will be the first to need care and typically the wife will provide it. When the husband dies, the wife generally survives him by eight years; during that time she typically will file a claim herself. So the insurance company has benefited by avoiding one of those claims by having a spouse act as caregiver.