Most financial service advisors are accustomed to reviewing a portfolio with an eye for whether an investment recommendation will meet the clients risk tolerance. We contend that long term care planning is no different – both for the consumer and the advisor – and risk tolerance should be able to be used to make the best recommendations in this arena, as well.
Each consumer evaluates their level of personal risk tolerance for whether they believe they may someday need long term care services. “Will this ever happen to me?” If they agree it may someday happen, they may wish to create a plan for future long term care needs. Unlike other investment decisions, the consumer must surpass an initial degree of risk tolerance in order to proceed with any LTC planning options and proposals.
Once a consumer has agreed to begin planning, the specifics of policy design have their own level of risk tolerance. Since no one can accurately predict the when and for how long they may need long term care services, the only adequate policy design to cover the full exposure would be a lifetime benefit policy.
However, this benefit can be more expensive than a policy design with limited coverage. The most commonly posed question to configure one’s benefit is, “What is the average length of time for which I might need long term care?” Here, many advisors and consumers have seen studies or claims that say something like, “The average consumer would need to stay in a nursing home for 2.7 years.” This statement has been published in a variety of studies, with slight variations in the exact number of years; however, we need to look closely at this statement.
First, any average is based upon a group of incidents ranging from a low to a high point. When it comes to risk tolerance, it is important to understand the consumer’s concerns, as they may only be concerned with the high points. So what, then, is the high point? Frankly, only the survey takers would know this answer.
Next, we need to be aware that long term care services are delivered in a large variety of settings, not just merely nursing homes. In fact, many studies have shown that the vast majority of long term care services are delivered at home. Typically, only those with extreme circumstances would choose a nursing facility for their long term care service needs, as long as other alternatives such as home care or assisted living facilities are available.