LIFE INSURANCE OPTION
But rather than opting for a standard long-term care insurance policy, Pence purchased a life insurance policy with an accelerated-benefits rider that promises to pay out all or part of the death benefit if the policyholder needs it for long-term care.
Pence says such policies do not have the use it or lose it feature of other long-term care insurance. Under life insurance policies with such riders, heirs receive the full payout if the covered individual dies without ever needing long-term care.
This is the approach that Pence now recommends for her clients. Among other features, she likes that, when long-term care is needed, the insurance requires no preapproval or proof of payment to receive benefits. Rather, once an individual qualifies as needing long-term care, the payments are made in cash.
Pence says that her clients' stories, like her own experience with her mother, have convinced her of the need to establish some sort of plan for long-term care needs.
"It really came home" to Pence in a conversation with a woman who was acting as the sole caregiver for her husband, she says. "When her husband died, the client came to me and said, 'Laila, if he hadn't died, I was going to die. The caregiving was going to kill me. I really felt like I was praying for him to die.'"
THE PRICE ISN'T RIGHT
Others are not convinced that advisors should widely recommend long-term care insurance. For instance, planner Thomas W. Lawson of T.W. Lawson Financial in Ann Arbor, Mich., rarely recommends it for his clients - most of whom, he says, hold significant assets. Lawson, who declined to disclose his solo practice's assets under management, says he doesn't have long-term care insurance himself, either.
"It's overpriced," he says, "and has limitations." He notes that, in some instances, expenses related to long-term care are not even covered.
Lawson will go through analyses with clients if they ask about such options, and he helps them evaluate whether a policy purchase is necessary. One client who ignored his advice and bought long-term care insurance, was quite happy that she did, Lawson concedes, since she subsequently received a diagnosis of the first stages of Alzheimer's disease. "She was very pleased she had not listened to my advice," he says.
Brent Horvath, a wealth management client advisor at Gries Financial in Cleveland, says planners at his firm, which manages about $500 million in assets, don't issue an emphatic thumbs up or down to long-term care insurance. Instead, he says, "we look at if the client can self-insure."
Although his firm's planners haven't carved any numbers in stone, they generally believe a single individual needs at least $5 million to self-insure.
But Horvath says he doesn't necessarily promote long-term care insurance to clients whose assets fall below a benchmark.
"It's a tough conversation," Horvath says. "We often have to tell clients, 'Your financial plans look good, your plans to leave something for your kids work, but one thing that could seriously derail things is long-term care costs.'"
What about for himself?
"I'm kind of at an age where it hasn't come up yet," says Horvath, who's in his 40s. But his parents have acquired long-term care insurance. "I recommended they do that."
Nancy Lynn Skeans, a partner and managing director at Schneider Downs Wealth Management Advisors in Pittsburgh, says she and other planners at her firm, which has $700 million in assets under management, also fall somewhere in the middle of the long-term care insurance debate. They don't insist on long-term care insurance for most clients, but they don't rule it out either, she says.
She doesn't offer a hard-and-fast number for the assets that are needed before a client may forgo such insurance. Instead, Skeans says, she approaches the question as one of portfolio security.
"If a client is really concerned about erosion of their portfolio and if you can buy long-term care insurance for half a percent or a percent of their holdings, you are protecting their portfolio with that," Skeans says.
She finds that clients "can accept that better" as an analysis of long-term care insurance based on portfolio protection concerns.
Skeans also notes that "a lot of people don't want to spend what it takes to cover premiums on long-term care insurance." She points out that if clients had needed long-term care at a time when the markets were dropping sharply, as in 2008, and they didn't have such insurance, they would have had to pull out from the market at a highly unfavorable time for their investments.