It’s a great time to be in the business of discussing how to plan for future health care needs. Whether the conversation is part of the national election debate about entitlements or simply among close family members, most everyone is concerned about who is going to take care of them in their old age.
However, before you talk to a client, it is important for an advisor to understand a little about the current long-term care insurance (LTCI) market. Needless to say, it has changed quite a bit in the last 10 years. For example, let’s say you’ve typically designed plans for clients based on the local private nursing home cost (for example, $200 per day) with a 5 percent compound inflation rider and lifetime benefits. How much would that coverage cost with today’s premium assumptions? Try about $15,000 per year for a 60-year-old couple. Presenting an initial premium quote that high is sure to be a conversation stopper.
In fact, leading with a carrier illustration for the client prior to them being interested is a sure way to be viewed as someone trying to sell them something instead of solving a problem for them. Instead, accept the fact that the world has changed and we are in a very low interest rate environment. That means product and plan designs must change as well.
I suggest that advisors incorporate the following three points when discussing LTC planning (not insurance) with clients.
1. First, have the conversation about the impact long-term care can have on a family. People buy LTC insurance for the same reason they buy life insurance — because they are concerned about the impact an event like Alzheimer’s could have on their family and friends. If they aren't ready to accept that it could happen or there would be an impact, they are not ready to plan.
2. Next, try to quantify the economic cost of LTC using a reasonable guess. Instead of using nursing home costs, look at current costs for home and assisted living care. Why? Because most people don’t want to go to a nursing home, and 69 percent of LTC insurance claims opened in 2011 took place at home or assisted living, according to the AALTC 2012 LTCi Sourcebook.
Using survey’s such as Genworth’s cost of care survey you can blend a mix of home care and assisted living costs and come up with a monthly cost estimate — for example, $4,500 per month. Next, you’ll need to estimate how long a care event might be. For example, someone might need two years of home care and two years of assisted living care — a total of $216,000 of care. Let the client guide the conversation of estimated cost based on their
preference and lifestyle — empower them to be in control of their planning.
3. Now that the client has identified the need to plan for LTC and potential costs, they can decide how they want to fund the plan. Do they have current money that they want to allocate for LTC planning only? Do they want to save the money necessary to pay for care? Would they consider LTC insurance? Have they looked at some of the tax advantages of LTC insurance? Should they consider a combination of self-insurance and savings? Again, let the client talk through the options with you to participate in determining what works for them.
If LTC insurance is one of the selected solutions and depending on the client’s health, you can then proceed to design a plan. In the above example, the premium for a 60-year-old couple with $4,500 of monthly benefit, $438,000 of total benefits and a step-rated 3 percent inflation adjustment is now about $3,000 for the couple compared to the $15,000 mentioned above. Using this type of inflation adjustment at age 80, the premium would be about $5,400 per year and the benefit would have grown to $791,000.
Finally, once a plan has been put in place, it needs to be communicated to the family members in valued and periodically reviewed for performance.
Those who currently own a plan should feel that they were wise in making their decision. For those who have yet to plan for LTC, it is true some of the products and policy features of LTC insurance have changed. However, the need for planning
is a constant.