Long-term care: An uncomfortable but necessary conversation

It’s not something people want to think about, but most acknowledge that long-term care should be a part of their retirement planning.

The problem isn’t just that they don’t want to think about it — it’s that more than half of people don’t think about it at all, even while conceding the topic’s importance. And while nearly half of people say they have plans to pay for long-term care through insurance policies, less than a quarter of them actually have such coverage, according to data this week from Transamerica’s Extended Care Report.

It can be hard enough for people to think about retirement on its own — but throw in the concepts of mortality and dependent care, and it’s a topic that they will actively put out of mind. Add in the cost of care, or even long-term care insurance, and the subject becomes both scary and expensive.

Financial advisors say they tend to broach the subject with clients as early as their 40s, a time when some already have experience caring for parents.

“Long-term care is the hardest risk to protect clients against, because the options are expensive no matter what path is pursued,” Kevin Brady, vice president at Wealthspire, said in an email. Conversations about it start when clients are in their 50s or early 60s, when insurance is “comparably affordable and health events are less likely to be problematic,” he said.

“Most people prefer not to rely on their children or family to support them should they need LTC. This is part of why having some amount of LTC coverage is the goal, relative to what they can afford,” Brady said.

NEAR AND DEAR

Elder care is also a subject that many advisors have firsthand experience with.

Advisor Marguerita Cheng’s dad was diagnosed with Parkinson's disease before she gave birth to her third child, and the topic of long-term care is important and personal to her.

She asks clients where they would like to be cared for, by whom and how to pay for it, which allows the subject to be addressed with sensitivity, Cheng, CEO of Blue Ocean Global Wealth, said in an email.

“I think before rushing into recommending a product solution,” she said. “I encourage clients to think about creating a plan for long-term care.”

Patti Black, partner at Bridgeworth Wealth Management, helped care for each of her parents before they died several years ago.

With clients, Black goes through what-if scenarios to show them how their assets could be depleted by long-term care, for example, looking at the effects of paying for four years in an assisted living facility.

“We would talk through what expenses, like real estate taxes, home repair and maintenance that would go away under this scenario,” Black said in an email. “We might then run another scenario with 10 years of care to reflect the possibility of a diagnosis like Alzheimer’s, which strikes fear in so many people.”

But the best medicine is often prevention — and she encourages clients to work on maintaining or improving their health sooner rather than later. That can mean spending money on healthier food and buying gym memberships, the effects of which could help offset medical expenses or long-term care in the future, she said.

TYPES OF COVERAGE

Intuitively, older clients are more receptive to discussions about long-term care, said Andrew Herzog, associate wealth manager at The Watchman Group.

“With long-term care policies costing so much, many times I recommend looking into whole life insurance with a LTC rider,” Herzog said in an email. “This way, they are slowly building up a cash reserve, in the event they don't even use the long-term care portion. If they need LTC, the rider helps and can be more affordable than a direct long-term care policy.”

After running projections with clients, Kevin Coombs, lead financial planner at Donaldson Capital Management, said the firm assesses whether self-funding or long-term care policies are a good fit.

Read more: Funding options for long-term care

“We don't directly offer LTC policies, but we do not recommend traditional pay-as-you-go policies, as they have become cost prohibitive. Hybrid policies (life insurance with LTC riders) are much more flexible and relatively less expensive,” Coombs said in an email.

Some people can “self-insure” with their assets, but that can be complicated if the amounts are not sufficient to cover costs for one or two people in a household, Nicholas Bunio, financial planner at Brookstone Wealth Advisors, said in an email.

“Pure LTC insurance can be expensive, but hybrid policies can be cheaper, or easier to get with more flexibility. These are life insurance policies with LTC riders … Getting these early does make costs cheaper,” Bunio said.

While long-term care insurance costs have risen, hybrid products coupled with life insurance can be a good alternative, said Lisa Crosta, director of wealth management at BPP Wealth Solutions.

“If the client does not use the long-term care, then [they] get a life insurance pay out — so no money lost,” Crosta said in an email. “Many clients are not comfortable simply relying on family members. And if they can afford it, they want to set themselves with insurance so not to burden the family.”

USING COVERAGE WHEN THE TIME COMES

Even if they have long-term care insurance, policyholders should make sure their children or relatives have access to all the information they need to put that coverage to use on their behalf.

Tammy Wener, co-founder of RW Financial Planning, has recently had to navigate the claims process for her mother-in-law, who now needs about $100,000 in annual care.

“It’s been challenging. And now a lot of what I talk with clients about, I see in real time,” Wener said.

She and her husband have had to piece together her mother-in-law’s hospital visits over the past year, something that her father-in-law had kept track of before he died recently, she said. Without a log of records — something that could be kept track of in Google Docs for example — it has been challenging to get claims approved.

Fortunately, there is an insurance policy in the first place, one that her mother-in-law kept even after having premiums hiked significantly twice over the past 10 years, Wener said.

“It’s a very good thing that we kept it,” she said. “But that was a big hurdle.”

For clients who are on a fixed income, retaining coverage can be tough, and that can lead to choices about ways to restructure benefits that can reduce the premium increases, she said.

If there is coverage, it can be crucial to ensure there is a power of attorney in place for relatives and a HIPAA release for adult children, Wener said. Relatives should also be given the contract numbers and phone numbers for insurance providers. “Make sure your kids know you have it.”