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Long-term care as a component of financial planning

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Part of every financial plan should include planning ahead for our clients long-term care (LTC) needs, especially at the earliest possible time when your clients have the greatest number of options available to them.

Some of our clients have experience dealing with the significant financial, physical and emotional impact of a caregiving situation; others have not had this experience and may believe either the government or their kids will take care of them.

So as we complete a needs analysis with our clients, what are some of the issues we may want to review?

Age and health: The earlier your clients address long-term care the more options they will have available to them and the more affordable those options could be. Many professionals believe that 40 to 55 is the best age range to begin. Why? First, the younger they are the less expensive the premiums for a long-term care policy would be, and second, the younger your clients are when they apply the better chance they are to get a preferred rate.

Addressing financial risk: Long-term care could present a significant risk to your clients’ financial status at a time when they can’t replace the assets they would use for long-term care or the income those assets could produce for them. By including long-term projections in your clients’ financial planning you help address the potential impact on their assets and income in later years. In other words, by comparing the cost of care today and what these cost might be at the time they may need them the most, 20 to 30 years out, your clients can make a more informed planning decision. What’s the likelihood of needing long-term care? According to a 2005 study by Milliman USA, out of 1,000 65-year-old policyholders:

  • 449 will get LTC services
  • 106 will get LTC for > 2 years
  • 59 will get LTC for > 3 years
  • 34 will get LTC for > 4 years
  • 20 will get LTC for > 5 years

Putting wishes and concerns in writing: While most people focus on the financial risk associated with needing care it is also critical for your clients to consider talking to their children and family about the things that matter most to them when it comes to needing care. Such as:

  • A) Where do they want to be when care is needed, at home as long as possible, assisted living, custodial care, or when the time comes, skilled nursing care.
  • B) Who will provide the care: spouse (depending on their age at the time and physical/emotional ability); children (impact on their spouse, working or not, children at home, physical/emotional ability); or an outside person. Would they feel comfortable having that outside person care for them?

Budget issues: Regardless of your client’s age there are a variety of financial priorities to focus on. Long-term care doesn’t have to be a have-it-or-not decision. You can help them design the level of coverage they are most comfortable with and that will meet the changing needs they are willing to address. Whether they pay a monthly premium, annual premium or reposition funds from a CD or other non-active asset that they don’t need to live on into a SPIA (single premium immediate annuity) and using that income to pay the premium on their policy, preserving their assets and giving them choices can be accomplished.

There are many plans on the market, so pick a carrier that specializes in the market, one who has a long claims history, that is experienced at pricing in this market and one that has been around for some time. Plan flexibility and features abound in the industry, making coverage available for most clients regardless of budget.

Rather than ignoring the risk, help your clients choose and put some level of protection in place. Having a pool of money in place helps protect their assets and the income from those assets against the risk of needing to fund long-term care at a time when they can little afford the expenditure.

Living longer increases the likelihood our clients will need some form of care as they age, the questions I ask my clients are:

  • “As you get older do you think you get more healthy or less healthy?”
  • “What matters most to you, having a say in how care is provided or what care is provided?”
  • “If how care is provided is important, in other words, you want the financial freedom to choose care in your home, in assisted living or some other less constrictive form of care, without having to spend down the assets you have at the time you need care, would it make sense to put a plan in place now?”

Helping our clients deal with risk that they are most concerned about, now and in the future, is what being a professional advisor is all about.

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