Part I: Why LTC needs to be included in a retirement plan
When people transition from work to retirement, they are thinking about their new life stage holistically. The fun part is their new-found freedom—to play more tennis, to sleep later, to do some consulting on their own time, to travel. They also think about their family and grandchildren, whether to move or to stay put, how to create a meaningful life after having focused on work, their legacy, and of course if they will have enough money to last a lifetime.
Lurking in the background, however, is their concern about their changing health status and the possibility that they may need care someday, and whether the high cost of care will deplete their retirement assets. A survey conducted of the oldest Baby Boomers found that “long-term care and how to pay for it” was one of the top two concerns along with running out of money.1
People are concerned about LTC, but rarely discuss it
Although long-term care is a major worry of people nearing or in retirement, it appears that financial professionals rarely bring up the subject. According to a recent study, women whose husbands had died wanted to know more about long-term care planning, but very few advisors talked to them about it.2 There are hardly any retirees who would neglect to purchase Medicare Supplemental Insurance when they reach age 65. But, for some reason, buying or planning for long-term care protection isn’t viewed in the same way.
Perhaps it’s because chronic illness, Alzheimer’s disease or other debilitating conditions are things that people don’t want to think about, so decisions are put off until a later time. Or perhaps it’s due to the fact that stand-alone long-term care insurance (LTCI) to date has not truly addressed what people need. They may be skeptical about the long-term care industry due to high costs, unexpected rate increases, and the fact that they may never use it. And then there is the misunderstanding about how long-term care insurance works with its many options, the reimbursement process, and about what Medicare pays and doesn’t pay.
However, the possible need for long-term care is often in the back of people’s minds, especially if they have been caregivers for their aging parents or have calculated the cost of care. The hard truth is that their retirement plans are not complete until the topic is addressed up front.
The perfect storm: the time is right for LTC planning
Despite any reluctance that potential buyers might have, the demographics and other factors have created “the perfect storm.” Long-term care protection is needed more than ever and there may be more potential buyers who are receptive to creative strategies.
- Longevity rates are increasing
- The Boomers are a big generation
- The likelihood of developing chronic conditions like Alzheimer’s Disease increase with age
- Women outlive men and are likely to age alone
- Sports injuries are increasing
- Families are stretched and can’t do it all
- Public dollars are in short supply
- Long-term care expenses are very high and rising every year
While the long-term care storm is brewing, there is some sunshine on the horizon. While sales of the long-term care insurance stand-alone product have been decreasing or stagnant, sales of combination products of life insurance with a long-term care rider are increasing. The combo product offers something different from a psychological perspective: even if buyers don’t need long-term care, the policy still offers flexibility to leave money to their heirs and/or take advantage of other living benefits.
LTCI buyers and claimants: some takeaways
Because the combo products are relatively new, industry data is sparse on the characteristics of the buyer and claimant satisfaction. However, there is much to learn from the data collected from recent studies of stand-alone long-term care insurance buyers and claimants that can be applied to those who purchase the combo product.
According to a 2017 study for the American Health Insurance Plans (AHIP), the average LTCI buyer is age 60, more likely to be married, working, college educated and have higher incomes and assets; in fact, four in five buyers have assets of more than $100,000.3 Buyers of LTCI tend to be planners, more realistic about needs, don’t believe it is the government’s responsibility to provide long-term care, and consider protecting assets the most important reason to buy it.
Long-term care insurance claimant data is interesting too for the lessons that can be learned and the applicability to claimants of combo products. When LTCI claimants and families were surveyed, they reported that they were satisfied with the insurance and the care it enabled them to have. Three in four said that if they didn’t have insurance, they would have received less care. Two in three said they would not be able to pay for care. Two in three said they would need to rely on friends and family for care, and about half said they would have to choose another care setting. Over half of those surveyed received paid care for two years or more, and of those, a quarter received care for three or more years. In keeping with consumer preference to age in place, about half chose to have their care delivered at home. In summary, claimants and families are satisfied, an important finding for potential buyers of long-term care protection.
1 MetLife Mature Market Institute, “The MetLife Report on the Oldest Boomers,” 2013.
2 Timmermann, Sandra, “Widows, Widowers and Their Advisors: A Glass Half Full,” Insurance Newsnet Magazine, April, 2017, reporting on study conducted by the American College of Financial Services.
3 Lifeplans, “Who Buys Long-Term Care Insurance: Twenty-Five Years of Study of Buyers and-Non-Buyers,” Prepared for America’s Health Insurance Plans, 2017.
Long-term care riders generally have an additional cost to them and have restrictions and limitations. Be sure to review the product specifications for details.
Long-term care riders are paid out as an acceleration of the death benefit providing only one pool of money available to the insured. A separate long-term care policy and life insurance policy will have two pools of money available to the insured.
Life insurance products are issued by Equitable Life Insurance Company (NY, NY) or Equitable Financial Life Insurance Company of America (EFLOA), an Arizona stock corporation and are co-distributed by affiliates Equitable Network, LLC (Equitable Network Insurance Agency of California in CA; Equitable Network Insurance Agency of Utah in UT; Equitable Network of Puerto Rico, Inc. in PR), and Equitable Distributors, LLC. Variable products are co-distributed by Equitable Advisors, LLC (Member FINRA, SIPC) (Equitable Financial Advisors in MI and TN) and Equitable Distributors, LLC. When sold by New York based (i.e. domiciled) Equitable Advisors financial professionals life insurance is issued by Equitable Financial Life Insurance Company (NY, NY).
Equitable and its affiliates are not affiliated with Dr. Sandra Timmermann.