Rate hikes could accelerate if claims rise with other health care costs.

Asset preservation has become an increasingly important issue with clients during the past three years, but it's not just market losses from which they want protection. Wary of the climbing costs of health care, clients also are looking for retirement plans that have built-in safeguards in case they're hit with a catastrophic illness.

For advisors, this is adding up to one thing: You'd better have the ability to intelligently discuss long-term care insurance with your clients, or at least have a relationship with someone who can. "Unless they're going to be involved in it on a daily basis, and follow the industry trends, it's very hard for advisors to stay on top of it," says Peter Gelbwaks, a long-term care insurance specialist and president of Gelbwaks Insurance Services Inc. in Plantation, Fla.

One reason advisors need to have some understanding of the long-term care insurance industry is that it is going through changes-including some that are having both beneficial and harmful effects on policyholders.

Some long-term care policyholders, for example, have been hit with rate increases in recent years that have been as high as 50%, Gelbwaks notes. The hikes have generally been blamed on companies taking on too much risk at too low a premium during the past ten years, when the long-term care insurance market started to take off.

A recent study by the California Department of Insurance found that many of the rate increases were enacted by subsidiaries of Conseco Inc., which filed for Chapter 11 bankruptcy protection last year.

Some companies have gotten out of the business altogether, either by selling their business or leaving clients without any coverage. "I'm finding that a lot of companies that used to write them aren't anymore," says Diane Pearson, director for financial planning for Legend Financial Advisors Inc. in Pittsburgh.

Although the industry's larger A-rated players, including GE Capital and John Hancock, have yet to hike rates for existing customers, one question clouding the industry is whether or not further rate hikes will be the norm as policyholders begin to file for claims. "Some companies have been a little too aggressive," says Brian R. Carlton, a former nursing home administrator who specializes in long-term care insurance as a partner with Hugg, Stuart & Carlton wealth managers in Forest, Va. "Over time, maybe over the next five to ten years, while all these companies are experiencing some claims, there may be a shakeout."

But there are some positive aspects to changes in the industry that advisors also need to be aware of, experts say.

They note that public awareness of long-term care policies increased last year when the federal government, through agreements with John Hancock and MetLife, made long-term care insurance available to all federal workers as an employee benefit. "I'm finding more clients during the last two to three years are bringing it up," says advisor Linda Yows Leitz, who owns Pinnacle Financial Concepts Inc. in Colorado Springs, Colo. "My rule of thumb is, if the client is under 50, bring it up and say we want to address it when they're over 50."

She adds that the subject comes up with clients who are under 50 if they have parents for whom they are interested in getting the insurance. If there are multiple siblings, she will sometimes advise them to split the cost of the insurance with their parents.

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