Long-term care (LTC) insurance has been in the market for nearly two decades. Over that time, while a few carriers have come and gone, countless families have experienced the devastating financial and emotional consequences of failing to plan for long-term custodial care scenarios.
Whether due to news stories or anecdotal experience, consumer awareness of those consequences likely is as high as it's ever been. Producers also are increasingly aware of their obligation to their clients to understand fully the issues of long-term care so they can make informed recommendations.
In recent years, there have been many industry articles — including many published in this magazine — that have done a commendable job of explaining the complexities of long-term care insurance and how to educate clients and prospects on choosing the policy that best fits their family's circumstances. I will not attempt to improve upon their fine work.
Instead, I propose that it behooves all of us in the insurance industry to take advantage of the ongoing public dialogue on long-term care issues by dramatically shifting the dynamics of our approach. We should take the emotion out of the equation by focusing on the importance of preserving the financial plan.
In proposing this, I am not suggesting that we, as advisers to our clients, marginalize the emotions surrounding what can be extremely distressing family decisions. My point — based on my experience of selling LTC insurance for the past 14 years — is that there might be less of a need to explore or validate these emotions with your clients than there was when LTC insurance first was introduced because the appropriate emotional settings already are in place in the public mind.
This idea is borne out by the average age of my LTC insurance clients, which has dropped from the high 60s when I first started writing LTC insurance policies to the low 50s today. In recent years, I even have sold coverage to much younger persons — many of them "only children" in their 30s, who already have had to assume the financial and emotional responsibility of caring for parents who are disabled because of illness or accident. These young people — some with parents even younger than me — are acutely aware that long-term care is not only a "senior issue" that can be put off.
I've also arrived at my position as a result of the experiences of my LTC insurance clients who have gone on claim or had family members do so. I honestly can say that I have never, ever had a client tell me in retrospect that he or she bought too much LTC insurance coverage. The realities of my clients' long-term care situations have shown them that, no matter how much they might have paid in premiums over the years, the total never came close to the cost of even one year of care. This is a powerful testament to the absolute necessity of this coverage in maintaining the integrity of the overall financial plan.
That's what the decision needs to be about: defraying a cost that would destroy the financial plan that you and your client have worked so hard to create and maintain. The emotional well-being of the family is a wonderful and welcome by-product, but it should not be the primary motivation for buying LTC insurance coverage.
Here are some ways in which I frame the discussion in financial terms.
I tell my clients that, unlike their plans for a rewarding retirement and leaving a robust estate to their heirs, it won't take years of asset accumulation to indemnify those plans against the costs of long-term care. An LTC insurance policy is full-value from day one.
I also remind them that, in protecting their future plans, it is vitally important that this "investment" be particularly secure. As with disability income insurance — another morbidity-based product, vs. actuarially more straightforward mortality-based products such as life insurance — the underwriting process for LTC insurance is necessarily involved and even a bit invasive. I always balance this by noting that there's a great deal of comfort to be taken from an LTC insurance policy with an aggregate loss ratio of less than 10%. And, if your client can make it through tight underwriting, he or she should feel secure about the stability of the protection purchased.
Certainly, while there are no guarantees when it comes to LTC premiums, the better a carrier's experience, the less likely it will see a need to raise rates. The best way to realize good experience is with thorough, upfront underwriting.
Finally, your client should have a realistic appreciation for why LTC insurance policies cost what they do. Take elimination periods, for example. Once they're on claim, I've had clients and their families come to grips painfully with the cost decision — made years earlier — to opt for 90 days over 30. In advising policy prospects, I emphasize that the difference between 90 days and 30 days isn't just 60 days — it's 60 x $200 (or whatever the average daily cost happens to be for home health care, assisted living, or nursing homes in your part of the country) x the percentage increase in daily costs 20 or 30 years from now, when the client is most likely to need it. We all know that LTC costs have been rising faster than the inflation rate for some time, and there's no reason to assume this will change.
As I noted above, an LTC insurance policy is full-value from day one — but the value itself is determined by the client and what he or she is willing to fund.
Ultimately, it's all about a sense of control — your clients want a say in how they are cared for. With the informed counsel of a trusted adviser, they can and should be able to make educated decisions about the level and kind of LTC protection they elect.
In the past, some advisers might have felt the need to scare clients into buying LTC insurance. That negative mindset can be left at the door today. Our role, as with financial and estate planning, is to empower those who trust our guidance to confront this issue and address it from a position of strength. Our clients know that they can't predict the future. Having LTC insurance, however, enables them to have a hand in creating it.
Diane Steeves, CLTC, is the principal of Diane Steeves & Associates, Portland, Ore., long-term care insurance specialists. Ms. Steeves has written more than $2.5 million of in-force LTC insurance premium.