Despite recent negative press, interest in Long-Term Care planning is increasing as more people realize how longevity will impact their loved ones and their financial position. Long-Term Care insurance may not yet be a household word but the need for planning for the financial costs and burdens of aging is very much on the minds of those ages 45 to 65.
“It has been my experience that nearly 75% of the individuals that purchase Long-Term Care Insurance are pre-disposed to long-term care due to family history,” said George Mellendorf, President of LTC Solutions with specialists who assist consumers nationwide.
Mellendorf explained that when an adult son or daughter sees how aging has impacted their parent’s health and the impact on savings they want to make sure they don’t go through the same issues as they get older.
As medical science continues to advance so does our lifespan. The result, even high net-worth families, can be problematic.
“The main concern is always an emotionally driven one, I don’t want this to happen to me but if it does I don’t want to be a burden to anyone else,” says Mark Goldberg, President of FPS Insurance Agency and a specialist in Long-Term Care.
Many experts say high-net-worth consumers have a choice, although some financial planners recommend keeping money in investments.
“25% of my clients are in a position to self-insure but choose to apply for a solution, whether it be traditional Long-Term Care Insurance or a Hybrid plan because they simply can’t invest their money and get the same return they will realize from coverage,” Goldberg said.
Experts differ as to the amount of money you need to even consider self-insuring. It ranges from as low as $1 million to $5 million or more. For high-net-worth consumers, one of the concerns would be a very long and costly extended care situation which could be devastating to even those with substantial assets.
According to the American Association for Long-Term Care Insurance (AALTCI), a national consumer advocacy and education group, 13.9 percent of all Long-Term Care Insurance claims could be expected to last more than five years.
"The latest data I have seen regarding care need duration comes from a report issued in 2017 by Credit Suisse," said Jesse Slome, executive director of the AALTCI. The report shared that 18.9 percent of care need was less than one year, 7.8 percent was between one and two years, 11.7 percent was between two and five years and 13.9 percent of claims could be expected to last more than five years, said Slome.
"It is important for consumers to understand the need to plan but also that there isn't a one-size-fits all approach to long-term care planning." Slome explains.
Most Long-Term Care Insurance plans are “pool of money” products which can grow with some type of inflation benefit. Decades ago insurance companies offered “unlimited benefits”. These are very rare to find today. Two well known unlimited options are from National Guardian Life (NGL) and One America. The NGL is a traditional Long-Term Care Insurance policy while One America offers a so-called “hybrid” policy. This is really a life insurance policy which offers benefits for long-term care. Since it is a life insurance policy it offers a death benefit. The NGL traditional plan does offer a return of premium option. In both cases, they can be expensive since they offer unlimited long-term care. The question is: do consumers need an unlimited benefit?
“Great Question, without a simple answer. If pushed I would say no lifetime is not really needed. A shared care policy where both partners can dip into each other pool of money that has a designed duration of 6.5 years is going to cover most combined risk and allow for enough time for some estate or Medicaid planning in case a claim were to last longer. There are exceptions to this rule but not enough to matter,” Goldberg explained.
Slome offers an approach which may remind some people of the old Sears catalog.
“We continue to encourage what we call the Good-Better-Best approach to long-term care planning, where coverage for even as little as one or two years can be better than having no coverage at all," notes the AALTCI director.
Partnership plans provide additional dollar-for-dollar asset protection but are more geared for those with under $750,000 in assets and especially ideal to protect smaller savings to prevent a family from losing everything. Can a high net-worth consumer get substantial asset protection without unlimited? The answer, as Goldberg suggested, is yes.
A couple, both age 54, with an initial $250,000 pool of money each with shared care and 3% compound inflation (meaning the benefits – not the premium – increase 3% every year on a compound basis, would have a combined $1,078,296 in long-term care benefit at age 80. If this is a partnership policy the couple would enjoy dollar-for-dollar asset protection in the event they were to spend through all the benefits.
One key for a consumer is to seek the assistance of a real Long-Term Care specialist who can make appropriate recommendations based on the individual situations. This way a consumer can obtain suitable coverage without over-insuring and spending more money than they need to.
“I don’t care to you have saved $150,000, $1,500,000 or $15,000,000. In all cases that person has worked very hard to save and plan for their family’s future. Everyone wants to have peace-of-mind and value. This is why a consumer should speak with a specialist who understands policy design and claims usage. Specialists know how these plans work and how they get underwritten. They can match you with the best company with the appropriate plan based on your needs,” said Brent Donarski, a Long-Term Care Specialist who operates MyLTCSpecialist helping consumers since the 1980’s.
Considering the likelihood of people needing some type of extended long-term health care prior to death the idea of an advance plan to address these costs and burdens makes sense … dollars and sense. No matter the size of your estate you are attempting to protect you can find a plan to safeguard your assets and reduce the burdens placed on family. But what about the articles talking about industry problems and rate increases? Donarski says the increases were primarily on legacy products sold prior to rate stabilization and the interest rate crash. In addition, the industry discovered that once a person gets a policy they never lapse it. Donarski points to that fact as proof that even with increases on old plans they are still affordable.
Today, policies are priced based on low lapse rate, low-interest rate environment, and much more conservative underwriting. Rate stability makes it less likely to see repeats of major increases in the future. Hybrid plans can never have an increase in premium.
“Long-Term Care Insurance has a voluntary lapse ratio of less than .5%, Yes, ½% let their polies lapse,” Mellendorf added.
Premiums for today’s plans are still very affordable. Many consumers in their 50s, for example, can get outstanding coverage for less than $150 month. Depending on the amount of benefits it could be lower or higher. Factors like your health could impact the premium.
One thing all experts agree on is some plan for Long-Term Care should be put in place. It may be insurance or some other type of plan, but an advance plan is prudent for everyone from a nigh net-worth person to those with minimal savings. That plan should be put in place, experts suggest, well before you retire.