In a perfect world, a client would never show up at your office requesting that you cobble together a financial solution for them after they’d encountered some sort of problem. Often, however, that isn’t the way it works. And if such a client shows up on your doorstep in need of late-in-the-game long term care insurance coverage, there’s more you can do than duck and run for cover.
Enter the stereotype
While there isn’t a completely “typical” picture of someone who is likely to show up in need of LTCI, the scenario too often looks something like this: An individual comes to your office only after receiving a diagnosis of Parkinson’s disease or Type 2 diabetes. At that moment, he’s finally realized his health isn’t going to last forever and that now is the time to pursue LTCI coverage. For better or for worse, he’s come knocking.
Unfortunately, at such a crossroads, seeking LTCI can be a bit like buying a fire extinguisher once your home is in flames. According to Maureen Lutkins, long term care manager with Underwriters Marketing Service in Mt. Laurel, N.J., it’s a predicament.
“Unfortunately, so many people are still in a state of denial and they don’t understand that LTCI just isn’t like normal life insurance.” People haven’t gotten to the point [i.e., old enough] where they need to have it, Lutkins adds, then they determine the need for it once their health begins to decrease – and then they can’t qualify.
With the bulk of sales issued to clients between the ages of 58 and 64 (58 is the average age of issue for LTCI), it’s clear that those who don’t approach the issue of coverage until their late 60s are pushing into a statistical risk zone. And those who do seek out coverage are overwhelmingly offered LTCI as a benefit through coverage in the business market.
If there’s any panic button, it’s not only that clients themselves don’t have LTCI on their radar, it’s that producers and planners haven’t gotten their clients to focus on the risk it presents.
“I don’t think producers have really gotten their clients to focus on long term care,” Lutkins says, “and the government just isn’t going to cover it – they’ve got to take care of it on their own.”
According to Tom Beam, professor of insurance at The American College in Bryn Mawr, Pa., another stitch in the LTCI cloth has to do with its complexity. “I think a lot of people, if they consider getting LTCI at an early age, they’ll be able to get it,” Beam says.
“And if the person can get LTCI, I would recommend [finding] a good agent; it’s probably one of the most complex products there is.”
But, if they wait until they have health problems, Beam cautions, “They might want to go to a financial planner to talk about different options” in how to utilize their estate to pay for their long term care.
Thinking outside the box
Bear in mind one thought should be first in a conversation geared around alternate long term care funding: how to utilize various resources to pay for care. Medicare funding options have been dealt a blow recently, so spending down a client’s assets to qualify for that care is no longer the option it once was.
According to Nancy Morith, CLU, president of NP Morith Inc. in Princeton, N.J. (Morith also serves as adjunct faculty at The American College), clients who seek LTCI after it becomes difficult to qualify have to start looking at alternate private financing options.
“The thing you need to do is look at what other assets are available and how they could be re-positioned to help fund care,” Morith notes.
This discussion should include the use of not only life insurance and possibly annuities but also home equity conversion mortgages or annuities that have LTCI riders attached. The challenge, as Morith sees it, is to address how assets can be reshaped to provide what’s necessary. “Is there existing life insurance that isn’t needed – can that be converted? Can you put an LTCI rider on an annuity? Then you can access not only the annuity without penalty, but there’d be a separate fund of money coming from the insurer. It’s looking at pots of money that exist that people hadn’t previously considered.”
Other options include viaticals or life settlements. With a viatical settlement, the client turns over his life insurance in exchange for an upfront payment of some portion of the death benefit. While it does provide an influx of funds, a viatical settlement typically is available only if a client has a life expectancy of less than 24 months.
Life settlements are available to more people. They typically allow a client to sell an old life insurance policy for more than he could get by surrendering the policy back to the issuing company. It’s certainly not ideal for LTC, but it can offer relief.
Start the conversation
No matter what scenario might be a fit for your client, these sorts of predicaments highlight the importance of talking about long term care options within the family before urgent needs arise. Such a case came from Professor Tom Beam, whose own mother wasn’t able to secure LTCI. “My mother did look into LTCI some time ago and she couldn’t afford it,” Beam says. “[Since then], we’ve sat down as a family and talked about what if.”
Beam’s mother has Social Security and some pension benefits, which would cover half the cost of a nursing home, and if she sold her condo, she would have a chunk of money to pay for a nursing home for quite awhile. “We’ve discussed this as a family,” Beam notes. “My mother would prefer that [my sister and I] not dip into our money and so she has no problems with selling the condo.” If either adult child should precede his or her mother in death, both Beam and his sister have provisions in their wills where a certain amount of money would go into trust to provide for their mother.
The important lesson in this anecdote is that an open and frank discussion among family members, coupled with some creative financial thinking (possibly selling the condo), can put a family in a powerful position to deal with a non-LTCI funded scenario.
The time is now
So the outlook for those who haven’t gotten LTCI in place in time can be bleak. What does that mean for you? What it should mean is that, in addition to thinking outside the box as far as funding after the fact, you should become even more proactive in bringing the LTCI conversation to the table to begin with.
For Barry Fisher, a 30-year brokerage general agent and currently the CMO of Republic Marketing Group in New Braunfels, Texas, LTCI’s message isn’t getting to the public the way it should.
“People are talking about the issue of how many Americans are uninsured for simple health care,” Fisher notes. “But the real future crisis is the 75 million baby boomers, 90 percent of whom have not purchased LTCI of any kind. If they’re counting on the government to help them out, it’s not going to be there.
“With long term care insurance, you’ve got to be healthy – and underwriting has become much more stringent,” Fisher concludes. “Once you’ve been diagnosed, your options evaporate quickly.”
Indeed. When it comes to LTCI, there’s is no savings in waiting. “I haven’t seen a scenario in 10 years where it benefits someone to wait,” Lutkins says. “And, if you lock in, most of the reputable carriers have not raised rates.”
An ounce of planning…
Again, it’s not that there aren’t options on the table. At least one insurer offers several different annuity-based options where the underwriting requirements aren’t as stringent. These products can be something of a mid-step for someone who might have diabetes (so he’s still operational) but would be disqualified from traditional LTCI products. Obviously, such products require clients to come in with a chunk of money, but then they’ll be able to purchase a single-premium deferred annuity and may be able to purchase a rider on top of that.
Keep this in mind: One of the things people forget is that a lot of folks have a good chunk of money – assets of many sorts – that they can use to pay for part of those nursing home costs.
If nothing else, perhaps the whole specter of alternate financing options and creating last-minute scenarios to develop an LTCI funding strategy will return the conversation to where it should begin: As with many things, an ounce of planning medicine in the realm of LTCI coverage is worth more than a pound of cure.