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Advisors, Consumers Need More Information on Long-Term Care Planning

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Long-term care planning is a struggle for advisors and investors, a survey released recently by Lincoln Financial found.

The survey of consumers and financial advisors found only about 20% of consumers have discussed long-term care with a financial professional and strikingly, less than 10% of advisors have implemented a plan for their clients.

That’s in spite of over half of consumers saying long-term care insurance is important and less than a quarter believing they’d have enough financial resources to cover long-term care needs.

Just 17% of consumers have an LTC insurance policy, which most say they got through an employer or online. That jibes with advisors’ responses; they said they place fewer than five LTCI policies a year on average.

The survey was originally conducted in October 2014 with Hanover Research among over 1,000 consumers, about 40% of whom work with a financial advisor, and over 370 advisors who had at least five years of experience and were managing at least $100,000 in assets. The advisor cohort also had at least some familiarity with LTC and hybrid products.

The report found that among consumers who work with an advisor, those who receive wealth protection planning, estate planning, tax planning and long-term care planning tend to be more satisfied.

When it comes to long-term care planning, though, advisors struggle to get past consumers’ skepticism over their need for long-term care — or simply that they’ll need so much — and their concern that LTC products are too expensive.

Consumers found it easier to acknowledge a family member’s potential need for long-term care than their own. A third said it was likely that a family member would need long-term care in the future, compared with 22% who said they would need it for themselves.

However, Lincoln referred to data from the U.S. Department of Health and Human Services that shows 70% of Americans over 65 need long-term care for an average of three years.

“Unless you’ve experienced a long-term care event for yourself or a loved one, you may not realize the impact it can have on your financial security – it can be one of the biggest challenges any of us will face in our retirement years, ” Will Fuller, president of Lincoln Financial Group Annuity Solutions, Lincoln Financial Distributors and Lincoln Financial Network, said in a statement.

Those consumers who did acknowledge they might need long-term care said they expect to rely on a combination of savings, health care insurance and government entitlements like Medicare — which doesn’t cover long-term care, although Medicaid does — to pay for it. In addition to not having a clear plan for how to pay for long-term care, 75% of consumers underestimate the cost.

Advisors have a real opportunity to show their value to clients by helping them with long-term care planning. Advisor respondents in the survey estimated clients without a plan who end up needing long-term care could spend down their retirement assets two to three times faster.

Lincoln found most advisors see traditional long-term care insurance as the primary solution to meet clients’ LTC needs over hybrid policies, life insurance or annuities with long-term care riders.

Consumers buy long-term care insurance to make sure they can afford their long-term care costs and to avoid depending on family members. However, 80% of consumers (and a surprising 51% of advisors) said premiums that were guaranteed for life were an important benefit of long-term care insurance — even though this isn’t a benefit traditional LTCI can provide.

“Advisors should understand how all of the options work, including hybrid solutions, which combine long-term care benefits with a life insurance policy or an annuity,” said Andrew Bucklee, head of Insurance Solutions Distribution for Lincoln Financial Distributors, in a statement. “Understanding how these solutions work can help advisors find the best fit for their clients’ needs.”

Advisors are focused on helping clients with retirement planning, longevity and LTC risk, health care expenses and stock market volatility, but the survey identified some areas where they may be underserving clients. Taxes, inflation, loss of income and support following the death of a spouse, especially if he or she was the primary earner, were all rated as top concerns by the consumer cohort, but were not issues advisors said their clients sought advice on.

Cash management and wealth protection in particular were two issues consumers said were very important, but that they hadn’t discussed with their advisor very much.

— Check out ‘Stan the Annuity Man’: Avenging Advocate for Annuity Truth on ThinkAdvisor.