For some clients, long-term-care insurance will be the best solution. But people are leery of it, largely because of its somewhat troubled past. The policies, which have been widely available since the 1970s, have over the years seen steep premium hikes; meanwhile, coverage has become more limited, eligibility requirements have become more rigorous, and carrier after carrier has dropped out of the space. Advisors attribute most of these woes to a lack of accurate actuarial data in the early years.
“ The industry has matured in some areas but remains an extremely nuanced landscape,” says Nicky Amore, a wealth advisor at Parallel Advisors in Chicago. Amore recommends that advisors perform due diligence before committing to a long-term-care insurer and evaluate a range of factors, including the carrier’ s financial strength.
Generally speaking, clients have a choice between two types of long-termcare policies: stand-alone plans and hybrid plans. The benefits are triggered on either one of these when the policyholder needs help with two or more necessary activities of daily living— such as bathing, dressing, eating, toileting and being able to move oneself in and out of bed. But stand-alone policies have strict eligibility requirements. You have to be healthy enough to qualify, which is why many advisors say that clients who want this kind of coverage should apply well before retirement, when they are still relatively young and in good shape.
Another drawback of stand-alone policies is that, if not used, the premiums paid in are forfeited.
For the past several years, however, the best-selling type of long-term-care insurance has been the hybrid or linked variety, which attaches the coverage to a life insurance policy or an annuity. Even if the long-term-care benefit isn’ t used, the policyholder still gets a payout— either a life insurance benefit or an annuity distribution. The underwriting standards tend to be less stringent, too, according to industry professionals. Hybrid plans are typically more expensive than traditional at Steward Partners. Clients who create a savings and investing strategy outside of their retirement plan“ stand a better chance of having the funds needed” for long-term care, she says.
Even clients who seem open to talking about long-term-care expenses and planning don’ t always follow through.“ The last thing clients want is to be a burden on their loves ones, [ and ] they are happy to have the conversation,” she adds.“ But will they take your advice is another story.”
To be sure, there are emotional obstacles that clients wrestle with when it
For the past several years, the best-selling type of long-termcare insurance has been the hybrid or linked variety, which attaches the coverage to a life insurance policy or an annuity.
stand-alone policies, but their premiums are guaranteed not to increase. They are“ attractive for more risk-averse clients or those hesitant about‘ use it or lose it’ coverage,” says Amore.
Whether or not they like to avoid risk, many clients don’ t want to talk about the possibility of growing infirm.“ In my experience, long-term care is often the elephant in the room— acknowledged but not proactively addressed,” says Georgia Lord, head of financial planning at Corbett Road Wealth Management in New York City.“ Traditional planning and retirement plans specifically need to move beyond linear cash-flow models and stress-test for something as disruptive as an extended care need, whether it’ s sudden or slowly progressing over time.”
Not Right For Everyone
Long-term-care insurance isn’ t the right solution for everyone, she says. So advisors should help clients identify other sources of funding for extended care. And she says you should ask,“ What would we liquidate or lean on if care was needed?”
Sometimes, she adds, these conversations involve the client’ s adult children, especially when the discussion turns to a client’ s cognitive incapacity. In some cases, it may be prudent to set up a trust to handle financial matters just in case.
But whatever the details of the situation, the key is not to wait until it’ s too late.“ Planning ahead gives you choice, control and peace of mind,” says Lord. Besides client procrastination, another obstacle that advisors frequently encounter is overreliance on 401( k) s. Large retirement plan administrators don’ t generally incorporate health and longevity risk assessments for policyholders, says Alicia Fuller, an advisor in Naples, Fla., with Coastal 360 Capital Advisors comes to talking about future incapacity.“ Psychology prevents many retirees from comfortably anticipating a possibility where they are less able,” says Tom West at Signature Estate & Investment Advisors in McLean, Va.“ A mind shift from denial to proactive preparedness is essential.”
Some clients, he says, benefit from having a health savings account( or HSA), which allows people with a qualified high-deductible health insurance plan to set aside money for future health-related expenses. HSA contributions, earnings and withdrawals for eligible purposes are tax-free. These accounts never expire, and they can be used for most long-termcare needs, he says.
No doubt the hardest type of infirmity for clients to contemplate is their eventual cognitive decline.“ It’ s important to have a plan in place for someone to manage your assets,” says Isaac Bradley, director of financial planning at Homrich Berg in Atlanta. Advisors should also be sure that clients have designated a trusted family member or other trustee“ to ensure your assets are used appropriately to support you and any other beneficiaries,” he says. After all, not all long-term-care concerns are financial.
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