In today's world, it is astounding to see that financial planners do not evaluate and position long-term care insurance (LTCI) as a form of asset protection. This is an important issue, especially for — but not limited to — people in their 50s, 60s, and 70s who are preparing for retirement and can ill afford to have long-term care costs consume their assets and threaten their income stream. Some planners may offer elder care planning and even more planners recommend LTCI, but focusing in on LTCI as an asset protection is something planners must do on a regular basis.
Insurance agents tend to view long-term care needs through the prism of insurance planning, whereas financial planners take a more holistic view — looking at a client's investment portfolio, lifestyle objectives, estate plan objectives, and so forth.
I firmly believe that once planners in the financial services sector are alerted to the importance of positioning LTCI as an asset protection, they'll do a multitude of good for their clients. That's where LTCI marketing organizations that offer educational courses, long-term care need estimating, software, and training enter the picture.
Reputable organizations, especially those with years of knowledge in the LTCI marketplace, are well-equipped to provide high-quality, ethical people — including other planners who specialize in LTCI — to work with the planner, either "splitting the business" or working out another mutually agreeable arrangement. Keep in mind there are fee-based financial planners who don't operate on commissions. These planners will need to refer their long-term care business to a reliable source. Now, they finally have a way of doing just that.
The financial planner-LTCI link can be strengthened steadily as valuable and trusted sources give planners a needed helping hand. Not only will that be to the greatest benefit of all involved — certainly including the 200 million plus seniors, boomers, and young working adults in need of long-term care coverage — it will erase a liability issue unbeknownst to many financial planners simply because it hasn't often, if ever, been brought to their attention.
Since planners operate under industry ethical codes of conduct and actually benefit from the full picture of doing a plan for a client, they have the responsibility to talk about long-term care. And there is a possible window of opportunity open from that standpoint.
My interest in long-term care and the means to pay for it was aroused a couple of years ago when my mother and some of my clients near her age were becoming ill. Previously, I tended to shun learning about the coverage due to all the rate hikes and related marketplace situations. However, when I finally took a closer look, here's what I found:
• LTCI policies being offered today are better than they used to be.
• The National Association of Insurance Commissioners (NAIC) created the Model Rate Stabilization Act and amended it in August 2000. It helped stabilize the industry.
• Policy benefits and options have improved. They include shared care, rate guarantees, different inflation options, return of premium, and cash options to name a few.
• Marketing companies have valuable tools ready to help educate the planners and their client base.
• The Deficit Reduction Act of 2005 (DRA) eliminated or greatly curtailed many Medicaid planning tactics.
• New planning tools have been developed to estimate a client's potential future long-term care costs based on his or her locality.
• Turnkey networking opportunities exist.
• Available planner-to-planner support exists
• Specialized LTCI training is available.
• New state partnership plans are on the horizon.
We, as planners, often look at the client's situation and develop a plan to take the client from "Point A" to "Point B" so he or she can retire and live the golden years in comfort. But what can make that picture blow up? What if the client becomes ill or goes into a nursing home and spends $400,000 for care? Shouldn't we, as planners, be talking about this? Shouldn't we be saying that we can help solve this problem?
As a financial planner, I think about things differently. I'm not thinking about where I can buy 500 leads and send a mailer out to 500 people. Rather, my concept, since I've become educated about the LTCI product and marketplace, is focusing on long-term care insurance and spreading the word to people that they absolutely and positively need it!
Over the years, financial planners found LTCI placement and acceptance difficult for a number of reasons:
1. Many insurance companies or marketing firms do not understand how a financial planner would approach LTCI with their clients. I think planners will approach LTCI with their clients just as they do other planning issues: one client at a time, not mass marketed. If a planner introduced 15 or 20 couples a year to LTCI — and there are thousands of planners — it could equate to hundreds of thousands of new LTCI policies each year.
2. Unlike auto and homeowner's insurance, in which clients do not expect any return on annual premiums, LTCI is often viewed as needless risk coverage. Many are in denial when it comes to needing long-term care insurance; they believe it won't happen to them. It is the age-old battle of cost versus future benefits.
3. Planners and clients who were not educated on the state of LTCI, new government regulations, liability issues, and devastating financial loss to the client face an uphill battle. Both the planner and the clients have to accept the need for long-term care coverage. Not only may the client be reluctant, I often hear planners say, "We will self-fund the problem and not bring the subject up with clients." That may be a possibility in today's dollars, but the real problem lies many years in the future when long-term care could cost in excess of $300,000 or $400,000 a person. Liability issues are just starting to surface from family members asking why the planner or adviser did not offer or recommend LTCI to a loved one.
4. Many long-term care insurance companies unwittingly fostered a tainted opinion of LTCI with planners and their client base. Historically, many LTCI companies have entered and exited the marketplace, while others remain only to issue large rate hikes to policyholders. Both situations can be blamed on poor actuarial assumptions made by insurance companies. This has placed a burden on existing long-term care insurance providers to re-think and develop new products going forward. The bad news is it will cost the client more.
With the LTCI industry in better shape, new Medicaid rules, and partnership rule changes, it is a great time for planners to revisit LTCI opportunities and networking possibilities. Financial planners have a duty to educate themselves about long-term care and the LTCI marketplace and bring long-term care insurance to the attention of all their clients.
All the tools to do just that are now available to financial planners through LTCI marketing organizations with a good track record. That's how financial planners should approach long-term care needs.
Clients who may naturally resist considering LTCI to cover future risks will change their thinking when you reveal the potential costs and risks involved in not considering it. Just telling them about the average cost of care is not good enough — they need to see it in writing. Let me share an example of how this tactic worked for me and how it can work for other financial planners.
I had married clients who for years did not want to consider LTCI. Then I produced a written plan detailing current and future estimates of long-term care costs in the town where they had lived all their lives. Like others, this couple saw family and friends struggling with long-term care expenses, but their own vulnerability did not sink in until they saw the enormous amount of money required to cover minimum long-term care costs. I enjoyed a long relationship with these clients who had savings for retirement. The written estimate I presented showed that they either had to save additional monies for the rising cost of extended care, or purchase an LTCI policy with a money pool indexed for inflation so they would have adequate protection in the future. Since they are retired and really did not have any excess funds to start a new savings plan, long-term care insurance represented their most viable option.
Again, such helpful advice for clients of financial planners is now possible and being offered through the products and services of LTCI marketing organizations with backgrounds that in many cases date back to when the product was unveiled almost three decades ago. They don't expect you, as a financial planner, to be an expert in long-term care. I understand that the average planner might write 15 to 20 cases a year. So, goes the rationale, why not network with specialists and they'll help you write those cases? Or you can refer those cases to a qualified planner LTCI specialist and he or she will take care of it for you.
The goal today is to coordinate the new LTCI marketplace with the planning process used by each financial partner. To accomplish this, planners need to place long-term care planning on equal footing with tax, estate, and investment planning. Financial planners are a valuable asset to their clients and rely on outside sources to accomplish their clients' planning needs. Tax advisers, estate planning attorneys, and insurance specialists help planners every day. Why not seek out a networking source that can provide not only product, but education for the planner and client on LTCI issues?
Planners realize that their main paycheck — their bread and butter — is not going to come from selling LTCI. A planner is not going to sell an LTCI plan to every client. But they should say to every client, "We need to look at your plan. You're (as an example) approaching 63. You need to consider long-term care solutions. Here are the current issues about long-term care, such as the Deficit Reduction Act of 2005, the Medicaid outlook, and the potential risks you face. I have prepared a written estimate based on long-term cost in the area."
Finding the appropriate LTCI product can be difficult and time consuming. First, of course, the health situation of the client is the key. I find many couples in which only one spouse is insurable, so they lose out on any spousal discounts. I try to get a good medical picture first and research companies that will take both people to preserve any possible discounts. The problem may be viewed differently from one insurance company to the next.
High decline rates are common in the industry. Clients who have been previously declined are more skeptical and difficult to work with. Contract language is very important; not all policies are the same. Acceptance can be easier by explaining the spend-down rules, the new tax rules, where Medicaid is going, different policies, underwriting problems, future financial risk, and what to expect during the underwriting process.
What has been accomplished in the long-term care market until recently has been done from the viewpoint of an insurance agent/broker. Now, with the help of others, I want to change that mentality by doing it from the viewpoint of a financial planner.
Like all planners, my job is to get clients to a comfortable retirement and keep as much money in their pocket and out of Uncle Sam's as possible. Today, with many Americans living longer and health being a major concern, the problems and potential for disaster down the road need to be addressed and corrected upfront.
Seize the moment, reduce your liability, and, in the process, be able to satisfy your current and future clientele more than ever!
Gerald O. Summers, CFP, CLU, ChFC, CASL, is the director for the GoldenCare USA Financial Planning LTCI Division, with more than 20 years of professional service. He has instructed financial service courses for individuals throughout the midwest. Mr. Summers has also worked for several of the nation's largest brokerage firms as a vice president, senior vice president, and manager, and has operated his own independent financial service and insurance agency. He is an active member of the Financial Planning Association and has served as a local financial planning chapter board member and president.