It’s not just a ball of confusion when it comes to long-term care insurance. It’s one massive ball pit and Americans are drowning in it.
It's time for the financial advisor community to literally play lifeguard.
According to the annual Nationwide Retirement Institute long-term care survey conducted in partnership with Limra in May, 18% of adults say they currently own LTC insurance, including 27% of millennials. That's not a bad ratio on the face of it — about one in five.
Unfortunately, industry data show that’s not really the case. Only 3.1% of Americans have purchased LTC coverage and most of those are older consumers, according to Limra estimates.
Hold on. Don’t shake your head in disbelief yet. It gets worse. Much worse.
The Nationwide study also revealed that more than half (51%) of respondents who mistakenly thought they owned LTC insurance confused it with long-term disability insurance, and almost a third (30%) confused it with health insurance.
Not only do a worrying number of Americans think they currently have LTC coverage when they do not, but the ones who think they bought it have no idea what they actually bought.
And here’s the kicker: The longer they live, the higher the likelihood they will need it.
According to the Department of Health and Human Services, about 70% of people turning 65 can expect to use some form of long-term care during their lives. Without insurance, the costs of this type of health care can be devastating.
“A deeper dive into the data reveals a looming care crisis in America that could threaten millions of people's retirements. Financial professionals, therefore, have a responsibility to prepare clients for the risk of major expenses related to long-term care that they may face in their later years, and educate them on their available solutions,” said Jeff Beligotti, New York Life’s head of long term care solutions.
The Covid-19 pandemic undeniably left a deep imprint on the long-term care insurance industry, most notably the dramatic shift it triggered from facility-based to home-based care. As people required care, but were unable to access services as a result of the quarantine and lockdown, more family members decided to provide it because they were working from home and unable to travel give the lockdowns.
“Although home care was not initially the preferred plan of care, it quickly became one,” said Prudential financial advisor Anthony Laino. “Then as people realized they could care for their family members and not have to visit them through a closed window, they just adapted and supported the care needs of their elderly relatives.”
The question now is whether this far more cost-effective trend will endure. But that’s not the industry’s only uncertainty in the wake of the pandemic. "How high will rates rise?" and for "how long?" are also questions dogging LTC providers and buyers.
Annual increases of more than 3% in LTC costs are making the coverage a risky proposition for many Americans, leading to a higher utilization of the maximum daily benefit than initially expected. And home care costs have surged notably over the past five to six years.
“The pandemic initially resulted in lower incidence and shorter claims for LTC. However, this was a temporary phenomenon. There has been a rebound in incidence and claim rates, indicating that the pandemic's impact on these aspects was short-term,” Laino said.
The Covid era has also seen a trend toward dual-purpose policies that combine life insurance with LTC coverage. This combination offers clients a way to pay for care if needed or provide a remainder of life insurance proceeds to their estate if they do not use it for LTC.
The two-in-one solution also need not be a budget buster. It simply needs to be the right fit.
“Solving the long-term care challenge does not necessarily require a million-dollar policy,” Beligotti said. “Financial professionals can help clients determine the right amount and type of coverage to include as part of a broader retirement strategy.
As to why so many Americans don’t own LTC insurance, well, first of all, it’s not the most pleasant of topics for an advisor to raise with a client. It’s an especially unappetizing subject for younger advisors who have never personally experienced the challenges and costs of taking care of an aging relative.
On the other side of the table, a large number of clients are simply unwilling to discuss aging, and the prospect of losing their health and mental cognition as they age, with anybody, including trusted financial advisors.
“It is much like many not having a will or owning life insurance because people don’t want to discuss their mortality,” said Peter Kaplan, senior vice president of the insurance solutions division at Integrated Partners.
Andrew Crowell, vice chairman of wealth management at D.A. Davidson, conjectures that clients often compartmentalize the various aspects of their financial life, letting LTC or other areas fall through the cracks. For example, they may only discuss their investments with their financial advisor, not their insurance policies, liabilities, company stock options and tax issues.
“They may have different individuals helping them with each of these aspects of their overall financial situation and may only think to discuss their insurance coverage with their insurance broker, for example,” Crowell said.
Meanwhile, some advisors simply don’t “do insurance” or don't have the appropriate qualifications and or knowledge. As opposed to simple portfolio allocation, LTC policies are often complex products with many choices — and potentially pricey ones as well.
“The negatives, like out-of-control pricing increases, regarding LTC insurance make advisors and clients avoid LTC insurance because of the well-known mistakes LTC carriers made in pricing early LTC insurance plans," Kaplan said. "This has created a continued mistaken belief that their clients are going to be subject to large future rate increases and advisors never want a disgruntled client that could leave them.”
All that said, most advisors say pricing on LTC insurance is much more stable now that the cost of the previous mistakes is known and included in the current pricing. The challenge is convincing clients.
Addressing the question of why clients don’t understand what they already have, Kaplan said the faith and trust that clients place in their financial advisors may lull them into complacency. It doesn't help that LTC insurance is often purchased years before it is needed.
“Sometimes the details may have been glossed over, but I believe that many advisors will discuss the details and options,” he said. “During the planning discussions, multiple options may have been discussed, and once the final design and plan is implemented, it is not revisited and discussed so people simply forget.”
To address this specific challenge, advisors need to regularly review clients’ policies, seek clarity from their insurance provider and stay informed about any changes in their coverage.
“Proactively educating and discussing one's long-term care insurance can help ensure clients are aware of the type of coverage they own,” said Jared P. Remesz, wealth advisor at SageView Advisory Group.
More and more baby boomers are seeing the impact that an extended care event can have on their parents and siblings. Still, advisors say that's not translating into a rush into LTC products.
Once the topic is breached, however, advisors say it should be part of a total financial plan. To get this right, they suggest bringing in an independent, experienced LTC specialist who is well-versed in the products from all the different companies. Price shopping is also encouraged.
“Since long-term care insurance premiums can vary significantly, I utilize reputable partners to obtain quotes from multiple insurance providers. This allows us to compare policy features and premiums to make an informed decision that fits into a client’s budget,” Remesz said, adding that it's also critical to verify the financial strength and stability of the insurance company behind the policy to “ensure that the insurer can meet its obligations in the future.”
Medical underwriting plays a crucial role in implementing the solution, and based on the underwriting decisions, the provider or the product may need to be switched or redesigned.
“The cost of the product most certainly does come into play but often that is the final step in the process once underwriting product availability is determined. The larger providers all have teams and technology solutions to support clients at the claims stage and these are also looked at,” Kaplan said.
Once the delicate topic of aging and mortality is on the table, advisors can expand the conversation to include different types of protection as well.
“Clients who may not qualify for long-term care insurance can sometimes still qualify for life insurance, and cash-value life insurance can help offset long-term care costs,” Kaplan said. “Clients who may not qualify for insurance at all can get long-term care annuity contracts where they are able to leverage the single deposit two or three times, providing additional cash flow for a long-term care event.”
Eric Mangold, founder of Argosy Wealth Management, a Summit Financial firm, has a number of medical professional clients who rely on their hands to make a living, so he frequently recommends long-term disability insurance as well.
“One’s biggest asset is their ability to earn an income and it needs to be protected. If they can’t work because they are hurt or sick, they still need to provide an income for their family and long-term disability insurance can help,” Mangold said.
Despite all the misconceptions plaguing the LTC arena, there is hope and it comes — like everything else nowadays — in the form of artificial intelligence.
According to Nationwide’s LTC survey, one-third of Americans and more than half (58%) of millennials believe AI and robotics will provide their future in-home long-term care. As a result of this increasing acceptance of AI, Nationwide is testing elder-care robots in homes of select policyholders with mobility issues. The company says the goal of this trial is to assess whether the robots increase the potential for policyholders to age in their home and remain independent.
Or, in other words, continue with the stay-at-home trajectory set in motion by the pandemic.
“It is difficult for many families to find quality care for their loved ones. We are considering AI and robotics as potential solutions for this and are identifying if elder-care robots could become credible, compelling examples of extraordinary care for our members,” said Holly Snyder, president of Nationwide’s life insurance business.
Until that day comes, however, it will be up to flesh and blood financial advisors to start the conversations, answer their clients’ questions, and drain the very deep pool of LTC confusion.
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