While it was never easy to figure out the long-term-care insurance equation, it’s gotten even harder lately. Should you need any illustrations for these difficulties, listen to Meridee Maynard, VP-disability income and long-term care at Northwestern Mutual Insurance in Milwaukee, as she ticks off the percentage increases in other major companies’ LTC policy premiums one by one: 51%; 67%; 47%; 60%. Northwestern Mutual’s rates, she points out, have not increased since the introduction of their new product series in 1999. Or consider Robert Davis of Long-Term Care Quote (www.longtermcarequote.com), who advises advisors and consumers on LTC insurance policies, who says that the most-recent-generation policies from the major LTC insurers are “anywhere from 20% to 40% more expensive than policies they were offering 5-7 years ago.” John Ryan, of Ryan Insurance Strategy Consultants in Greenwood, Colorado, who specializes in helping fee-only financial advisors select LTC policies for their clients, points out that LTC underwriting is getting tougher and the new products may offer only a “5% increase in benefits but a 25% increase in rates.”
As if the price increases weren’t enough, there are also fewer carriers offering LTC insurance. Major players like CNA and Transamerica have left the marketplace, making for fewer overall choices and leaving even fewer with the long track records prized by advisors comparing carriers’ offerings. Aegon’s decision to exit the individual LTC insurance marketplace is cited by Davis as particularly unfortunate, since it “took three major players off the table: Transamerica, Life Investors, and Monumental.” While Ryan admits that the slow exodus is nothing new, he argues that it’s still troubling.
Jonathan Sard, a planner in Atlanta, says that for many advisors the problem is determining not only which carrier is a good fit for the client from a pricing and product standpoint, but also which company “we think will be there for the long term.” The departure of CNA and Transamerica from the marketplace concerned Sard because of their size, and because they hadn’t had a “rate increase for the long term.”
It’s important to look at multiple carriers’ offerings when recommending a policy for clients, Sard says, and cites as his favorites those from GE, John Hancock, and Lincoln Benefit. But he notes that Lincoln Benefit recently changed its product series, and in doing so raised premiums for new policyholders, which he called “somewhat typical” among LTC carriers. He recommends to clients with investable assets of less than $200,000 that they should weigh the pros and cons of purchasing LTC insurance, but he tells clients with investable assets of more than $5 million that they should consider self-insuring. Despite that advice, Sard says he has many clients who could self-fund, but still buy long-term care insurance. “They want to share the risk with the insurance company,” he points out. “They’re looking to protect their assets, and have purchased insurance to protect other things, so why not for nursing care?”
Sard is not alone in urging some clients to self-insure, and asking clients with lower net worth to consider whether they really can afford a policy. John Henry McDonald of Austin Asset Management in Austin, Texas, says he tells clients with “$1 million-plus” that they don’t need it. McDonald notes that 91% of nursing home stays are less than five years.
How Did You Say I Can Do This?
McDonald says that he often talks to his clients’ children about LTC insurance, whether or not the parents’ net worth is high enough to pay for a policy. “We advise the kids to pay the premiums.” Even in the case of wealthy parents, he says, he’ll talk to the grown children: “Your parents are never going to run out of money,” he tells them. “We’re not talking about their money. We’re talking about yours. You can put in $2,000, $3,000, or $4,000 a year on each parent and save your inheritance.”
Such an approach is one way to deal with the necessity, or perceived necessity, of paying for long-term care. Sard also recommends that some clients have their children purchase insurance for parents who might not be able to afford the premium because of cash flow, but nevertheless have assets to protect and are worried about paying for nursing homes or home-nursing care. The professional child, he suggests, might pay all or part of the premium for those parents. He also recommends LTC insurance for parents who live in a different city than their children and can’t afford a policy. “The children say, ‘I’ll take care of them,’ but that lasts for a few weeks or months,” he says, pointing out how difficult it is for adult children with careers and family demands to travel to provide care for ill parents.
Arthur Stein of First Financial Group in Bethesda, Maryland, says he points out to his small-business-owner clients the benefits of LTC insurance bought by their C corporations. “Owners of C corporations can buy policies for themselves and their spouses and no one else in the corporation, and still it’s 100% deductible to the corporation,” he says. Owners can buy it for themselves and their spouses, and have the corporation pay the premiums; the individuals are still owners of the policies, premiums are not treated as taxable income to the policy owners, and any benefits they receive are not treated as income either. Stein argues it’s the same as health insurance premiums that are deductible to a C corporation.
Another suggestion he makes to his C-corp. clients is that they purchase a long-term care policy with a 10-pay option. Taking it a step further, he says these purchasers can also opt for a return-of-premium rider, so that if the policy is not used, all premiums are returned to the insureds’ heirs. Doing it this way transfers the money out of the corporation and on to heirs without any income tax due. If the insureds do use the policy, the benefits protect the estate so that it can still be passed on to heirs and not spent on care.
Marital and Other Forms of Bliss
Stein also advises clients with prenuptial agreements to get LTC policies. “Say the poorer spouse needs long-term care; the richer spouse has to pay for that care, and Medicaid will not kick in till both spouses are impoverished, despite what it says in a prenuptial agreement,” he cautions. “Without a long-term care policy, there’s a big hole in the prenuptial agreement.”
Spouses aren’t the only ones who are concerned with LTC policies. While spouses can get a discount if both share the purchase of a policy and draw from a single pool of benefits, now there are also companion discounts. Meridee Maynard mentions these as being useful for “two elderly sisters who may be living together,” as well as a man and woman who are living together but not married, or same-sex domestic partners. While there are requirements concerning the amount of time they have lived together, this option allows coverage for people who might otherwise be unable to get it.
One place to find insight into the LTC equation is from Long Term Care Partners (LTCP), the joint venture of John Hancock and MetLife that offers LTC insurance coverage to federal employees through the federal Office of Personnel Management. Paul Forte, the CEO of Long Term Care Partners, says one of the most popular options selected in customizing the LTCP policies is that of “informal” care benefits, which allow for a family member or neighbor or even a friend to be reimbursed for services they provide to the insured. “It’s one of the reasons we think the program is well received,” Forte argues.
The federal program, he adds, also has a “vast, significant preference” for comprehensive policies providing for home- and community-based care rather than just nursing homes. Incidentally, the federal program also has no exclusion for war or terrorism, something noteworthy among insurance programs in general and among disability carriers in particular.
Forte also says that many participants in the government program also opt for longer waiting periods, taking a 90-day waiting period instead of the 30-day option. “It’s equivalent to saying, ‘I’ll take a little deductible in this area because I want to spend my premium dollars on things I think are more important,’” he argues. “They absorb a bit up front to get long-term advantages.”
When Do I Buy It?
Assuming that you or your clients are firmly convinced that LTC insurance is an absolute necessity, at what point do you encourage them to buy it? At age 40, or 50, or 60?