We constantly hear about a shrinking long-term care insurance market, but the reality is the market is growing. There are more options available than ever before to help protect consumers and their families from the high cost of long-term care (LTC) expenses. This is great news for clients, their families and their advisors. But how do advisors navigate through the options available and help ensure their clients get the solution or solutions they need for their specific care desires and circumstances?
Know The Options
Standalone LTC Insurance: The old standby has suffered through a reputation crisis as many carriers have raised rates and removed options. However, the ability to pay a health insurance like premium is an option that may suit many clients despite the lack of guarantees and the potential that the benefits may never be used. While most policies are issued with a lifetime premium schedule, the annual outlays are often lower than options which come with a base life insurance or annuity product.
Life/LTC Combination Products: During the past two years, LTC solutions that are attached to a life insurance base product have outsold the standalone LTC insurance products, according to LIMRA. While these policies provide a death benefit if care is not necessary, they do tend to have higher initial premium costs to account for these additional benefits. These policies are designed for clients who would prefer to fund their LTC plan over a shorter time frame and who have a need for a death benefit for a surviving spouse or their heirs should care not be needed. In addition, many of these solutions offer return of premium options and are fully guaranteed which adds to the certainty of premiums and benefits.
Annuity LTC Riders: Sales of these riders continue to grow and give protection for LTC expenses with the ability to annuitize should care not be necessary. Recently, impaired risk annuities for clients that have an existing LTC need have emerged as a solution. This option is available for those who may have not planned for this risk or may not qualify for coverage due to an existing medical need.
Short-Term Care Insurance: Recently, sales of these policies have increased dramatically as clients have realized that some coverage is better than none. These policies tend to be of a shorter duration, hence the name, of less than 2 years. They are often discussed and purchased along with a Medicare Supplement purchase.
Having The Talk
A recent Lincoln Financial study found that a majority of consumers want to speak with their advisor about their long-term care risks. As advisors have these discussions with their clients and walk through all of the product types available, determining the appropriate solution will require clients to move beyond the mindset of care probabilities—which is greater than 50 percent. Instead, clients need to understand the impact of the costs that care can have on a couple, an extended family or on an individual’s retirement plans in the face of longevity. It’s estimated a consumer turning 65 today will incur on average $266,000 in long-term services and support costs, should they require future formal care, not accounting for inflation.
Long-term care risks can be exacerbated for couples. A routine long-term care event can severely impact the financial well-being of the healthy or surviving spouse. This creates a challenging dynamic for advisors to solve for because the needs of a surviving spouse are different than the needs of the couple. Implementing companion solutions which address the different needs of each spouse may be appropriate. For example, a life/LTC combination product may help address the risk for the older spouse, while a small standalone LTC policy may help with the LTC needs of the likely surviving spouse. In this scenario, if the older spouse has an LTC event, the assets of the surviving spouse may be protected, and if there is no LTC event, the combination product’s death benefit on the passing of the first spouse enhances the survivor’s retirement income needs and their own LTC funding plans.
As the burden of LTC expenses often falls on the children of those needing care, advisors should also consider intergenerational planning—helping clients put solutions in place to protect their own assets that might otherwise be needed to pay for care for their parents. While clients may not see LTC as a current risk for them personally, they will likely be concerned about their parents. Many of the products available today can not only address the expense drain when a client’s parents need care, but can also potentially prepare the client for their own long-term care planning. For example, a Life/LTC product purchased on the parents may help ensure that their parents will receive care if needed, and if care is not required, provide a death benefit to assist in the client’s own potential care needs. In a sense, the death benefit payout can be rolled over to help address a client’s LTC need.
A majority of care today is provided informally by family members. Whether planning for a couple or for a family, it is critical to understand and consider options that also provide support for family caregivers who provide initial care to help delay the need for expensive care in the future.
In most planning situations, the long-term care risk is increased when other risk factors are present. For example, longevity not only increases the risk of outliving one’s assets but also the risk of incurring long-term care expenses. In another example, the early death of a spouse can impact both the income needs of the surviving spouse as well as the loss of a caregiver for less intense care needs. Hybrid or combination products provide a dual purpose that allow for options when such risks are enhanced.
The cost of just one year of an LTC need can significantly impact clients’ assets, including those earmarked for retirement and family. Today there are many options making it easier to customize a solution for clients. Each available solution should be discussed when addressing overall retirement plans, and in the cases of dual-purpose products, life insurance and annuity discussions present additional opportunities to raise the topic of LTC. Whichever solution or mix of solutions is determined most appropriate, clients and their extended families should ultimately be prepared as a result.
Steve Schoonveld is the head of linked benefit product solutions for the Lincoln Financial Group.