11 Tips on Long-Term Care as Rates Rise
The cost of long-term care insurance rose by 8.6% compared to a year ago, but that isn't likely to dissuade advisors' commitment to using it for clients. That's according to Jesse Slome, director of the American Association for Long-Term Care Insurance, which recorded the increase in rates between January 2014 and this month.
"It doesn’t really alter the advice. If a client needs it, they need it," says planner Susan Stiles, founder of Stiles Financial in Edina, Minn. Instead, she says, the higher price tag should change the way planners shop for and construct their clients' policies.
To get a sense of the cost increase, consider that a healthy 55-year-old man can expect to pay $1,060 per year for $164,000 of potential benefits, compared to $925 last year, Slome says. The average cost for a 55-year-old single woman rose to $1,390 from $1,225 per year in 2014, he says.
The trade group's members include insurance agents and financial advisors.
As the cost of the policies increases, here are steps to consider when advising clients, according to Stiles, Slome and planner Paul Jarvis, of United Capital in Fargo, N.D.:
1. Put the cost of coverage into perspective.
The average annual cost for a year in a nursing home in Fargo is $95,000. For full-time, but not overnight, care in the home, the price tag is $56,000, Jarvis says. "When people think of physically cutting checks from bank accounts, then it becomes a reality and they think, ‘I really do need to plan for this,’" he says.
2. Don't try to offset all costs of long-term care.
"We are not looking at policies that would cover all costs if a client required a long-term care facility," says Stiles, who takes a more strategic approach to shopping for coverage. "The idea is to get a policy that would offset some of the costs and not leave their spouse destitute after they run through all their money." Most clients have other assets they can rely on to fill in any gaps left by their policies.
3. Consider employer policies.
"The larger the corporation, the more likely there are long-term care options out there," Stiles says, but make sure they are portable. "If not, usually we say, 'Let's not buy this.'"
4. Buy in the sweet spot.
Clients should start shopping for policies in their mid-fifties, but not earlier, Stiles says. "Our analysis finds that, any earlier than that, you don't really get a benefit on premium deduction," she adds. After age 80, clients generally are no longer eligible for a policy.
5. Shop around.
The prices and kinds of policies vary constantly, Stiles says. At certain times of the year, she has found insurers are looking to sell more policies and drop the prices. It pays to research, she says.
6. Give your clients options.
Pacific Life offers a policy that allows clients to pay a lump sum of $100,000 or $200,000 toward long-term care insurance that they can take back if they want to cancel the policy later, Stiles says. Or they can arrange to have that amount pass on to heirs after they die. In taking the money back, policyholders surrender most of the gains on those sums. "Our clients actually like that as an alternative to a policy that you have to keep paying premiums on. It's really a great strategy, especially if you are single and on your own," Stiles says.
7. Negotiate with insurers.
Many clients are still paying on high-cost "Cadillac" policies they bought years ago that offer unlimited coverage on certain expenses and have cost-of-living riders that now greatly outpace the growth in the markets, Stiles says. Often, the planner finds she can negotiate with insurers on behalf of those clients to drop some excess benefits and reduce the inflation adjustment.
In the case of one elderly couple, "we were able to drop their payment from $9,000 a year to $5,600," she says. "We just said, let's remove the inflation rider. It was really significant."
In this case, she felt confident making the change, especially given that the couple had other assets that could help if needed.
8. Consider hybrid life insurance and long-term care policies.
Planners increasingly prefer to sell policies that combine the two benefits, Slome says.
"You are trading a smaller life insurance benefit for the opportunity to get longer long-term care. It's just a different way of slicing and dicing the issue," he says. "Let's say you buy a life insurance policy that, if you don't ever need long-term care, you will die and so it will leave your beneficiaries with a life insurance benefit. If you do, however, need long-term care before you die, you are going to start drawing the policy down to where you've used up all the benefit, and then it will trigger an accelerated rider that will extend the benefit."
9. Go with 30- or 60-day elimination periods.
Stiles used to advise her clients to buy policies with 90-day elimination periods, which means the benefits paid out by the policy would begin only 90 days after the client first started paying for long-term care. The only problem is that some clients' illnesses don't last long.
"I had a client that should have used it but didn't want to," Stiles says. "She was allowing her husband to take care of her." Diagnosed in April several years ago, she died that June before receiving any benefit from her policy.
10. Address the disconnect.
Oftentimes married couples think they are on the same page about long-term care when they are not, Jarvis finds. "What's really fascinating is we'll see a lot of clients say, 'Oh, honey, I don't want to go into a nursing home. Don't put me there.'" But when asked if they want their spouses to become their caretakers, "They say, ‘Absolutely not. I want them to enjoy their life.'"
11. Prepare to teach.
Buying long-term care coverage involves both research on the part of the planner and a lengthy learning curve for the client, Jarvis finds. "It's surprising to folks how much they learn when they visit with us, about themselves and about what great options exist," he says.
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