In October 2011, Glenn Neasham of Lakeport, Calif., was convicted of felony theft from an elder for selling an Allianz indexed annuity to 83-year-old Fran Schuber. The issue? Schuber had dementia; Neasham said he didn’t know it. He lost his license and his home, now has a public defender after running out of money and is out on bail pending an appeal.
Advisors who do not sell insurance may think this cautionary tale does not apply to them. However, dementia in the elderly is likely to affect advisors even if they merely advise them about insurance coverage as part of an overall plan.
A recent conversation with Dr. Stephen Holland, chief medical officer of Univita Health, revealed several reasons why advisors should become more attuned to older clients’ mental acuity. In a presentation before the Life Insurance Conference in April, Holland and Peggy Hauser, senior vice president and chief actuary at Univita, noted that the correlation between dementia and life expectancy is both measurable and substantial, and life insurers are including dementia screening in their underwriting for elderly clients.
Insurers and reinsurers are interested because failure to screen for dementia could put them in an elevated risk pool by accepting too many clients with the disorder. According to Holland, Alzheimer’s disease is present in almost half the population over 85. “Between the ages of 70 and 79,” he said, the rate “can be as high as 15%. For the pre-dementia state, include another 20% to 30% of individuals.”
Said Holland, “A 65-year-old woman has maybe 15 years or so of life expectancy. But a 65-year-old woman with dementia will have only 7.5 years.” Men with dementia have 20%–25% shorter survival times than women with dementia.
According to a 2005 REVEAL study, people who test for Alzheimer’s and are given information about their likelihood to get the disease change their behavior. Part of that change is the purchase of additional insurance: both long-term care (LTC) policies and higher life coverage.
In fact, in what was described as a “perfect storm” of antiselection, those with genetic markers indicating dementia risk were 5.8 times more likely to increase LTC coverage, and those with a family history of Alzheimer’s were three times more likely to have already purchased a LTC policy prior to being screened.
There are numerous risks involved with the confluence of dementia and insurance of various types for elderly clients. Advisors could find themselves suggesting insurance strategies too late, and clients are no longer able to pass underwriting. Family members could influence elderly relatives to boost life coverage, knowing dementia could shorten their lives or could dispute an advisor’s counsel based on their own knowledge of a relative’s mental acuity. Advisors could avoid recommending coverage lest they find themselves accused by insurers or clients of some form of wrongdoing.
Dementia is not always easy to spot: just ask Glenn Neasham. Family members may chalk up early signs to simple forgetfulness. Clients themselves may be unaware of their own condition, thus failing to reveal it for insurance underwriting without any attempt at deception. Even if physicians suspect cognitive impairment, often a precursor to dementia, they are reluctant to record it because it is difficult to identify—and, according to Holland, “because they have nothing to offer patients.”
So what should advisors do? Holland suggested they talk to clients about purchasing insurance coverage early, while it is cheaper. Also, if an advisor who sells insurance suspects a client may have dementia, he could ask the insurance company to test for it.
Advisors who don’t sell insurance should still talk to clients about their needs. The longer clients wait, Holland said, the more difficult and expensive it will be to purchase coverage for such strategies as wealth transfer, particularly if dementia has entered the picture with its “significant impact on longevity.”