CONFRONTING AN OFTEN-NEGLECTED RISK
The importance of having extended-care
discussions with clients
By Thomas A. McCoy, CLU
Far-sighted employers are interested in the financial wellness of their employees for good reason. Industry studies point to financial worries as a key driver of worker stress, which, in turn, is a hindrance to productivity.
Thus, some benefits plans are starting to offer employees access to financial guidance, such as debt counseling or, for those nearing retirement age, retirement funds management advice. One significant financial risk that is too often ignored, both in and out of the workplace, is long-term care. It’s the elephant in the room.
And yet, individuals who are still young and healthy often have a latent awareness of their long-term care risk. That’s because they have found themselves caring for a parent or other family member with long-term care needs.
Nadine Vogel, CEO of Springboard Consulting, LLC, speaking at a recent Guardian Life webinar, said there are roughly 39.8 million people (16.6% of the adult population) in the United States who are caregivers to an elderly person with needs due to an illness or disability. She cited figures from the National Alliance for Caregiving.
Vogel also noted that, according to 2020 figures from the Administration for Community Living, 70% of today’s 65-year-olds will eventually need long-term care services or support.
The long-term care insurance market is characterized by an expanding number of products linked to life insurance or annuities. Many companies offering traditional long-term care coverage have exited the market, and linked products have taken up the slack. The American Association of Long-Term Care Insurance (www.aaltci.org) estimates that roughly five or six hybrid long-term care policies are purchased for every traditional one.
“We’ve never had a larger variety of solutions,” says Craig Roers, head of marketing for Newman Long Term Care, an agency focused on long-term care planning for 32 years. “There’s traditional long-term care insurance, linked benefit solutions, long-term care insurance riders on annuities or life insurance, short-term care and chronic illness coverage. The carriers in the market are stable and strong insurers.”
The addition of products linking life insurance and annuities to long-term care insurance have provided agents and brokers with new opportunities, but so far the coverage appears to be undersold.
“Industry-wide, long-term care insurance sales have been relatively static for many carriers and agencies,” says Roers. The reason, he says, is “Many advisors are not having extended-care discussions with their clients.
“Advisors who are experiencing growth in long-term care are those who have changed from a reactive mode to a proactive approach. Instead of waiting for someone to ask them about the product (often prompted by a health issue), successful advisors are proactively having these conversations with their clients and insuring more while they are younger and healthier.
“Successful advisors are proactively having these LTC conversations with their clients and insuring more while they are younger and healthier.”
Head of Marketing
Newman Long Term Care
Jesse Slome, director of the American Association for Long-Term Care Insurance, says, “It is common for people to first think about long-term care planning when they, or a loved one, such as an aging parent, are already in need of care. In these scenarios, working with a knowledgeable estate planning attorney can be highly beneficial.”
Unfortunately, he says, “Interest in long-term care planning, and thus interest in insurance, is negligible among what I’d call the prime demographic. This includes those between the ages of 55 and 65, who are in relatively good health and also typically have retirement assets of at least $500,000.”
For linked benefit products, such as annuities, Slome says, the ideal age for planning can be higher—between 60 and 75.
“The need for extended care planning has never been greater,” says Roers. “The pandemic brought awareness of the caregiver shortage. Some facilities were so short-staffed that the National Guard was called in to help provide care. Seeing families separated from their elderly loved ones due to quarantines helped reinforce for many their desire to never receive care in a nursing home.
“The caregiver shortage is only expected to worsen,” he continues. “In a world of supply and demand, care costs can grow substantially. Those with resources often have more options.”
Slome says, “Long-term care insurance is gaining acceptance in the employee benefit space. Larger businesses are finding that adding a life policy with a linked long-term care benefit is a way to provide their employees with voluntary coverage. Look for more guaranteed issue variations of these policies to be launched in the year to come.
“For small businesses, especially those established as C-corporations, the coverage is being carved out of the benefits plan and offered to a select group of employees,” Slome says.
Roers has found that smaller employers using the product as part of executive compensation is the most common scenario. “Advisors bring long-term care insurance planning to the smaller businesses they serve, or they work with them on executive carve-outs, where maybe senior leadership gets a company-paid policy.”
Approximately 20 states offer a deduction for long-term care premiums, and some offer a credit. In addition, Slome points out, “The federal tax deductibility for traditional long-term care insurance is the most overlooked benefit for older consumers.
“While the federal deduction of premiums is unlikely to benefit someone in the early years when they have few medical expenses, after retirement, when their income drops and medical expenses increase, it can be meaningful to be able to deduct the full premium,” says Slome. “Few agents ever discuss this with clients because they focus solely on the present, overlooking the future.”
Roers notes that a further influence on the market could be the enactment of state government-mandated programs for long-term care insurance. The heavy burden that states bear for Medicaid costs has them looking for solutions.
“Some states are considering implementing payroll taxes to fund long-term care trust programs that might provide a minimal benefit. Washington became the first state to enact a mandated pro-gram in 2021, taxing all W-2 earners,” Roers explains. The law becomes effective July 1, 2023.
“Those who owned long-term care insurance in Washington before November 1, 2021, are allowed to opt out of the program. This caused a rush on long-term care insurance carriers, and most suspended sales as they became overwhelmed with applications.”
Roers’ firm, Newman Long Term Care, partners with firms that are not specialists in the product, including property/casualty agencies, to provide agreed-upon levels of long-term care support. Commissions are split between Newman and the partnering firm.
Roers notes that the addition of long-term care business to a property/casualty account can be a meaningful retention tool. “Lapse rates are extremely low, and a client cannot move their coverage to another agency.
“Long-term care insurance also can be a useful part of legacy planning,” he continues. “Let’s say you insure a family farm, and the farm land is worth $3,000 an acre. If the owner needs long-term care that costs $5,000 a month, how much land might need to be sold to pay for that care? Farmers also know they can’t sell the land an acre at a time. And if they need to sell during an extended crisis, the price they receive might be reduced.”
An employee benefit program, including medical expense protection and a retirement plan, is the primary source of financial security for most workers. Long-term care insurance is one major financial product that isn’t broadly included in benefits plans. It could be destined to grow there.
In the meantime, financial wellness programs can be a vehicle for calling attention to the long-term care risk and the availability of coverage outside the plan.
Thomas A. McCoy, CLU, is an Indiana-based freelance insurance writer.