6 Things to Understand About Long-Term Care

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Payouts from insurance companies for U.S. long-term care coverage hit $7.85 billion last year, an increase of 5% over the prior year, according to a new report by the American Association for Long Term Care.

But some professionals worry that many planners are falling short when it comes to advising on LTC coverage. Both Jesse Slome, the association's director, and insurance agent and expert Romeo Raabe, who bills himself as "the long-term care guy" of Green Bay, Wisc., offer up a few facts, forecasts and trends they think advisors should pay attention to.

1. Payouts are likely to rise.

"The nation's long-term care insurers expect to pay $15 billion annually a decade from now, in 2023," says Jesse Slome, the association's director -- "and more than twice that amount, or $34 billion, in 2032, when today's 60-year-olds reach their 80s."

That would be a roughly fourfold increase in covered expenditures over less than two decades, Slome points out.

2. Where the money goes might surprise you.

The bulk of the payouts made by insurers go to cover care that enabled people to stay in their own residences or in assisted living communities, and not for skilled nursing homes, Slome says: "Consider long-term care insurance as nursing home avoidance protection."

3. People will live longer than they think -- and will need help.

"People underestimate life expectancy," Slome says. "Few adults in their 50s or 60s are prepared for the financial consequences of their longevity." Almost 70% of people turning 65 will need some long-term care in their lives, according to the U.S. Department of Health and Human Services.

4. But clients may need less care than they think.

The biggest issue that keeps more people from buying needed coverage is their belief that they need to pay more for them than they really do, say both Slome and Raabe.

Many clients won't think of buying a policy if they can't afford more than two years of coverage, when that time span might do the trick, says Raabe, who counsels advisors on insurance planning. But "for a lot people, two years of care may be sufficient."

5. Partial coverage might be enough.

Raabe says he sometimes helps clients figure out how to use partial coverage effectively.

He cites a relatively modest example of $5,000 in monthly care costs, and suggests that a client might be able to allocate $2,500 a month -- say, $1,500 from investments and $1,000 from other income -- toward that care, leaving only $2,500 a month to cover with an insurance plan. That smaller payout might be more manageable, he says. "There might be only a $3,800 or $4,000 premium a year for that," Raabe says. "There's no reason for them to buy $5,000 worth of coverage, [if] they don't need so much."

6. Advisors may be falling short.

Raabe argues that long-term care coverage is still not playing a sufficient role in planners' work with their clients.

"Advisors need to remember that they can create a huge nest egg for a client only to have it go away in a couple of years because of a health problem," Raabe says. "Advisors need to ask clients if are going to mind a bill of $100,000 or $200,000 a year for a nursing home."

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