Sept. 24, 2018 Moment of Truth: The Value of Long-Term Care Insurance
Have you ever put the emphasis on the wrong syllable when pronouncing a word? For example, some people say “INsurance.” I say “InSURance.” Since I am an insurance professional, I must be right, right?
No matter how you say it, the real issue when it comes to insurance is that clients and advisors tend to put the emphasis on the wrong part of the process. Conversations about long-term care often gravitate toward the premium and potential rate increases—it is one of the main reasons clients are hardly enthusiastic about purchasing a policy. Of course, concerns about premiums are understandable. But shouldn’t the emphasis be on the value of long-term care insurance?
It’s a Planning Issue
According to the U.S. Department of Health and Human Services, approximately 70 percent of Americans age 65 and older will need some type of long-term care service. Further, studies show that planning for health care costs in retirement is top of mind for many clients. Given all this, doesn’t it make sense to address this concern as a planning issue, rather than having clients go through financial triage when a health crisis occurs?
To be sure, advisors who have had success with long-term care planning typically bring it up during discovery or in the annual review. In discovery, they may ask, “Do you have a plan in place to cover potential long-term care expenses?” During the annual review, the conversation might start like this: “We haven’t addressed this yet, but as your financial advisor, I have a responsibility to prepare you for potential long-term care expenses.”
Now, you may be thinking, “I (or my clients) will not need long-term care.” But here’s something to consider: Most individuals reading this article believe they could live a long life. If your clients believe this, then it is also reasonable to believe that they could become frail or ill and need care. That’s why they rely on you to ensure that they won’t outlive their retirement portfolio.
The Moment of Truth
It might help to think of long-term care as a series of small to large crises that require quick decisions be made under stressful conditions. Let’s consider a typical scenario.
Family members find they can no longer care for a loved one whose needs have increased. Suddenly, they have to scramble to find caregivers or a facility, but they must also get involved in the finances. If no long-term care plan is in place, challenging financial decisions must be made. For example, who pays the caregivers or the facility? Where does the money come from? What must be liquidated to cover expenses? Is there enough retirement income to meet expenses, as well as other financial obligations?
I think this scenario helps illustrate that the value of a long-term care plan becomes evident at the time of claim. Indeed, this is the moment of truth. With a plan in place, the scenario above will unfold in a very different manner.
Carrier responsibility. As the claims process begins, calls must be made and paperwork filled out. But then the work shifts to the carrier. Once a claim is approved, there may be a waiting period before benefits begin. With some of our products, however, benefits flow immediately. Plus, most policies include care coordination, where an experienced coordinator works with the family to find the right caregivers or facility. A plan of care is also developed to ensure that the policyholder receives the care needed to stay safe, whether at home or in a facility. Finally, policies may even pay for equipment or home modifications, if included in the plan of care.
Income firewall. One important point to consider is that clients who have not had the long-term care discussion tend to underestimate the cost of care. In fact, the national median is $90,000 per year. In higher-cost areas, it can be as much as $150,000 per year. How long would clients have to pay this out-of-pocket before wishing they had a plan in place? Think of the value of being reimbursed for even a portion of these expenses. To some extent, insurance puts a firewall around their income and assets.
Value for the family. Perhaps most important, with a long-term care plan, families can focus on their loved one who needs care—without having to untangle a challenging system of caregiving. Experiencing long-term care with a family member is stressful and sometimes chaotic. Coordinating care while possibly trying to save money can strain even the closest family members. Having the financial side and care coordination covered removes a tremendous burden from the family. But don’t just take my word for it. Let’s see what the research has to say.
Life Plans, an insurance marketing organization, performs an annual survey on experience and satisfaction levels of long-term care claimants. Its most recent report includes these compelling findings:
- Three out of four claimants indicated that if they did not have long-term care insurance, they would receive less care.
- In the absence of a policy, two of three claimants would not be able to pay for their current level of care and would have to rely on family, friends, and other volunteers to make up the care gap.
- Nearly half of respondents indicated that, without insurance, they would not be able to receive care in their current setting.
- Approximately three out of four claimants believed that their insurance has enabled them to access higher-quality providers.
Now, you may have heard anecdotal stories about claims not being paid. These stories have convinced some that insurance carriers are the adversary and will attempt to suppress claims. As a result, you may find that some clients are skeptical that claims actually get paid. But this could not be further from the truth. In 2017 alone, $9.2 billion in claims were paid to policyholders, according to the American Association for Long-Term Care Insurance.
The Life Plans study tells us that for every 100 claimants, only 2 claimants are likely to have had a disagreement about coverage that was not solved to their satisfaction. Overall, 70 percent are very satisfied with their policies, and less than 5 percent are dissatisfied.
A True Value
Imagine two scenarios: a long-term care event without a policy and one with a policy. Which would you prefer for your clients, your family members, and yourself? Whenever I have raised this question, no one has ever responded, “I would prefer not to own a long-term care policy.”
When having this important planning discussion, it’s best to keep the emphasis on what this product can do for your clients and their families. The true value of long-term care insurance is more than money. It is the freedom to get the level of care your clients want, where they want it—while protecting both their families and their retirement plans.
Written by: Susan Kobara