In my 27-year career as a long-term care insurance specialist, I have witnessed quite a few changes. What started out as almost a cottage industry product grew into a mainstream financial services product. However, part of the growing pains included benefit changes, higher premiums for new products, and rate increases on in-force policies. The one thing that has remained constant throughout this period of time is the need for care and consequently the need for proper planning.
What is the foundation for proper long-term care planning? Well, let’s take a look at some numbers:
- 12 million: The number of Americans expected to need long-term care by 2020.
- $94,170: Average national cost for one year in a private nursing home room. Assuming a three-year stay and 4 percent inflation, this care event would exceed $290,000.
- $41,124: Average national cost for one year in an assisted living facility.
These numbers are even more alarming when we contrast them with the fact that the baby boomers’ proportion of the population is growing and that it is expected that by 2030 those age 65 and older will account for 25 percent of the population.
Dealing with the need for long-term care is of extreme importance, not only to us as individuals but to the nation as a whole. The financial impact to families and the economy in general will be severe if this risk is not insured to a relatively large extent. So what should we do as professionals who influence clients where matters such as these are discussed?
- Know the products available and how each one works to protect your clients and their needs.
- Start the process of planning earlier.
- Have the conversation with your clients. Seventy percent of all long-term care policies are purchased only because the clients ask their planner about it, and oftentimes that is too late.
- Partner with a brokerage firm that specializes in and has a track record with long-term care insurance.
Where to Start?
Look at your own family and make comparisons or decisions based on that history. Have you had or do you know of loved ones who went through an extended care situation that required help in either their home or in a facility? If so, were they covered by an insurance policy that offset some of the cost or did they pay dollar for dollar out of their savings? How did it affect the entire family’s physical, emotional, and financial well-being? Who made the sacrifice to make sure that Mom or Dad was taken care of? What did that really cost?
This need is real. It isn’t fiction. It’s fact. Families get torn apart when an illness leads to extended care. Days at work are missed, kids’ activities get pushed to the side, financial decisions get caught up in the interworking of relationships already strained. That was never part of the plan. Parents rarely stop and think how inclusive this care is; they never planned or wanted to become dependent on the children they raised to be independent of them.
- LTCi. Individual long-term care insurance (LTCi) has been on the market the longest and is what most clients and professionals think of when the topic of extended care is brought up. Advantages of these plans include their ease of use come claim time, their extreme flexibility, their relative affordability (in many cases the cost is as low as $100 a month), and the fact that they work off a “pool of money” concept and generally pay for all levels of care (within reason).
- Hybrids. These products are tied to a life insurance policy. They represent the fastest growing product line in the long-term care coverage marketplace. The reasons for this are many; however, be sure to understand exactly how and where benefits are to be paid and the influence on the life insurance coverage should you need coverage for long-term care. These policies tend to differ greatly, and if you have questions, be sure to contact a long-term care insurance specialist so your clients have a proper understanding of implied value.
- Annuities. The appeal of these instruments is that they are typically not medically underwritten, and, if they are, only minimally—the reason being that the payout is the “insured’s own money first.” These products are primarily used with an older subset of the population, those over age 75 where traditional long-term care insurance is not an option.
This is an area of particular interest to business owners and the self-employed. In general, long-term care insurance premiums are fully deductible when they are paid by an employer on behalf of an employee. Depending on the type of incorporation, premiums paid on behalf of owners/partners may be fully or partially deductible. (Always consult your tax professional with respect to the deductibility of any premium.)
Partner with a firm that specializes in long-term care insurance and has done so successfully. Knowledge, experience, and flexibility are all critical success factors. I assure you the one-plan-fits-all days have come and gone. Hybrids and annuities do not fit into everyone’s plan, but they can be very effective. Traditional long-term care insurance plans are the most flexible, but if they are initiated too late in life, medical underwriting or pricing may make them inaccessible or prohibitively expensive.
I cannot sufficiently stress the importance of planning for long-term care and identifying and allocating the appropriate monies. Currently, I have three family members on claim, paying nothing out of their own pocket for care either in their home or in a facility. They chose to put their families first and put a plan in place early in life in case an extended care situation should occur.
What’s the risk of waiting? Your health. Waiting might prevent you from qualifying for the plan you prefer. Take the next step and consult a long-term care insurance professional. I think you will be pleasantly surprised at how affordable these plans are.
Have the conversation. Make the plan. I promise your client’s family—and your own family—will be forever grateful.