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June 14, 2017 at 12:05 AM
With thousands of boomers retiring every day, long term care may become a reality for more and more clients are going to face.
Roughly 70 percent of people 65 and older will need some form of long-term care in their lifetimes, and that figure will only grow as people live longer — but not necessarily more able-bodied — lives.
Home health, skilled nursing and other long term care services aren’t getting any cheaper, either. As of 2016, the national monthly medians were $3,861 for home health aides, $3,628 for assisted living and $6,844 for a semi-private nursing home room – not exactly affordable for retirees with modest assets, fixed incomes and average lifetime earnings.
Still, few advisors are well-versed in the available funding options, and even fewer clients are eager to tackle the touchy subject. As a result, retirees all too often find themselves depleting their assets, lowering their living standards and burdening their families to cover the costs.
For advisors, the situation presents a great opportunity to grow a practice by protecting the assets clients have accumulated over lifetimes of work. From long term care experts who tackle these issues every day, here are five funding strategies for different time horizons, needs and goals.
1. Traditional long-term care insurance
“For those who plan ahead and can afford a high level of protection, today’s long-term care insurance options are the best the market has seen,” says Chris Orestis, CEO of Life Care Funding. “The industry has had over two decades of experience, and companies have learned how to put together the best coverage and underwrite and price it correctly.”
Most LTCI plans are customizable, inflation-protected and pay-as-you-go, and benefits may be paid daily or monthly. They’re not cheap, though, with plans ranging from $2,000 to $5,000 per year for couples aged 55 at the time of purchase.
Those premiums can also vary. While newer, higher-priced plans may be more predictable, there’s no guarantee those rates won’t rise with increased utilization.
“You could be holding a ticking time bomb,” says Jackie Clark, long term care planning specialist with Farmington River Financial Group. “I’ll still quote traditional, but for those costs, I can usually get clients a comparable, asset-based product that can pay out in life insurance, long term care or even cash back if they change their mind.”
Given the high costs and potential for an investment “wasted” on unutilized LTC services, then, why would a client ever want a traditional LTCI policy?
“A traditional policy gives you more options and more money specifically for long term care, and they’re great for people who already have life insurance coverage,” says Orestis. While traditional LTCI can be expensive, it also tends to be cheaper than hybrid insurance, its premiums are paid over longer time periods, and it’s tax-qualified. All in all, it’s a solid consideration for people with lots of other assets to protect who can afford the potential premium increases.
2. Life insurance
For clients who can’t stomach the “use-it-or-lose-it” nature of traditional LTCI, hybrid life insurance policies can flexibly convert death benefits to LTC benefits.
“Say you purchase life insurance with a $500,000 death benefit,” says Clark. “Needing LTC would accelerate the death benefit, but the rest would still be there for your beneficiaries once you pass.” Hybrid plans also feature fixed premiums, and unlike traditional LTCI, premium payments stop once the benefits are triggered.
The trade-off is that hybrid policies require larger premium payments upfront – in some cases, a one-time lump sum. While many policies can be cancelled for a refund, that refund may not be 100 percent, either. Overall, what hybrid policies offer in flexibility they lack in potential value and cash-flow friendliness, and a choice between the two will come down to a client’s risk tolerance, goals and other assets.
And if a client is going to pursue a long-term funding strategy, they need to start early.
“The key to both standalone and hybrid long-term care insurance is buying it as early as possible, when you’re young and healthy and can get the best premiums,” says Orestis.
3. Short-term strategies
In a perfect world, everyone would plan at least a decade in advance. But accidents, illnesses and rapidly progressing dementia often create immediate, unfunded needs for long-term care, and many retirees seek funding within months or days.
