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Long-Term Care Planning: What Advisors Need to Know

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Long-term care may be unpleasant to think about, but that doesn't mean it isn't weighing on the minds of many clients. As more and more boomers retire, LTC planning is dominating the conversation between advisors and their anxious clients.

A new study from Merrill Lynch shows that near-retirees are more concerned about the unknown costs of health care than anything else, regarding it as the biggest threat to their retirement plans. However, key changes in the LTC insurance industry have had a profound impact on advisors’ options for helping clients plan for this unknown expense.

The number of providers offering LTC coverage has shrunk, as have benefits, while the cost of premiums continues to rise. Still, there are options available for advisors seeking a level of coverage that could protect clients if the need for home care arises.

Below are some of the most critical factors advisors must keep in mind.

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The American Association for Long-Term Care Insurance estimates that for a 60-year-old couple in good health, an optimal LTC policy -- one with a $150 daily benefit at plan inception, three-year benefit period, 90-day elimination, 100% home care benefit, 3% compounded annual inflation protection, and spousal discount --  would be valued at $164,000 for each person, while at age 80, it would be $325,000 for each person.


More than half of all Americans over 50 and earning above $250,000 annually say their greatest retirement financial concern is health care expenses, according to a new study from Merrill Lynch.

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LTC care of some kind will be needed by 70% of Americans who are aged 65 today, according to the Department of Health and Human Services. 



According to the American Association for Long-Term Care Insurance, premiums have risen 4.8% on average in the past two years. Estimated out-of-pocket health care costs $50,000 if retirement lasts over 10 years, and nearly triples if retirement lasts 20 years, according to the Health Care Cost Institute.



Despite rising LTC premiums, benefits and cost of living adjustments are being cut – the latter falling 3% from 5% annually, and in some cases being dropped entirely.

Most LTC carriers no longer offer what had once been an industry standard: 5% compound inflation protection. Another common benefit now extinct is the “refund of premium” benefit that allowed heirs to collect premiums the client already made if the insured died before a certain age, minus any benefits already paid against the policy.



Nursing home costs in some parts of the nation run as high as $95,000 per year – but providers’ products cover home care for far less, typically costing $45,000 on average. According to the American Association for Long-Term Care Insurance’s most recent figures, home care claims accounted for 51% of those opened under long-term care policies in 2012.



A good option to consider is spousal-sharing riders, which allow a couple to buy a designated number of years’ coverage – and then permit either spouse to use any of those years, says Nancy Skeans, managing director at Schneider Downs Wealth Management. Since statistics show that long-term care needs rarely exceed three years, Skeans says, this option can make economic sense for couples.



The LTC insurance industry has declined from its heyday in the 1970s. Only Genworth, New York Life, John Hancock and Transamerica Financial remain in the LTC business. Mergers in the LTC industry mean that some clients may find that their premiums are not honored by the insurer that acquired their former provider, and also may see higher rates, according to TIAA-CREF Life.



Genworth is the provider with the largest share of the nearly $406 million market. Genworth products start as low as $100 a month, or packages priced according to asset-protection goals, starting at $100,000 of assets. 


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