Here’s Why Long-Term Care Remains Elusive for Advisors
There are a few certainties in life: death, taxes and the possibility of a long-term care (LTC) event. But does this possibility mean all clients should take the plunge and buy LTC insurance? According to a recent white paper from the Nationwide Retirement Institute, the answer is yes. Moreover, high net worth clients are falling short in this arena.
One culprit, according to the report, is sheer and utter denial. Wealthier clients are more likely to have better health and more inclined to be in better shape, and therefore fail to see the importance of prioritizing LTC insurance. In addition, wealthier clients are better able to pay for their overall care without feeling any financial pain.
According to Edward Schmitzer, president of River Capital Advisors, L.C. in Jacksonville, Fla., one necessity for having this conversation is so that clients can carve out a plan for their heirs.
“Heirs are impacted by this decision. If LTC insurance is in place, potentially heirs can inherit more than they might otherwise,” writes Schimitzer in an email. “If LTC insurance is not in place, it is possible the dollars they would inherit go for LTC expenses.”
Advisors tend to agree the topic of LTC is in and of itself a confusing maze for consumers and that insurance as a whole is to be treated like a product. Long-term care has been a struggle because it is one product with “no good solution on the market right now,” according to Jenny Martella, director of financial planning at Keatley Wealth Management.
At her Charlotte, N.C.-.based firm, which has $160 million in AUM, she has seen clients come through the door with so much insurance they can’t afford to retire. This is due to increased premiums and being locked in to policies they refuse to let lapse. What is key, according to Martella, is to be honest with clients about the reality of what they will truly need.
“We need to insure for what’s remote, but what could happen,” she says in an interview with FA-IQ. Martella says that despite outliers, most LTC events happen for an average of 2.5 years.
“We need to plan to select insurance for what is likely to be a thing needing 2.5 years on average,” she says. “And to prepare and think about how to pay for [an event of] three to five years.”
Nationwide says that the proper remedy for the overall lack of enthusiasm about LTC insurance is to offer clients something a little different. Specifically, rather than insuring the person, clients should consider insuring their portfolio against a decline due to an unexpected long-term care event. But Beth Pickenpaugh, an actuary and senior financial planner with Guardian Wealth Management, Inc. of Chattanooga, Tenn., says this suggestion seems like a reframing of the initial sales pitch for long-term care insurance.
It is a conversation that should still happen, according to Pickenpaugh, whose firm has $250 million in assets under management. When it’s time to talk, she says, the client’s emotional components need air time. Wealthier clients tend to want to stay in their homes and care for one another, says Pickenpaugh, who also notes that due to advances in cardiac care, stroke and heart attack victims are becoming less common, even as Alzheimer’s patients increase in number. As such, getting a picture of the family health history is a helpful way to start the conversation.
“If a client has a family history of heart disease, I would advise them to get LTC [insurance] in their 40s or 50s,” she says. “And depending on the client’s family health history, sometimes they’ll want to pay into it earlier because they will become uninsurable in their 50s or 60s. When you pay early, you’re paying for your insurability.”
While the solution remains elusive, some advisors have suggestions for companies that would shore up some of the issues and close the gap. Charlie Fitzgerald, principal and financial advisor at Orlando, Fla.-based Moisand Fitzgerald Tamayo, says he doesn’t recommend LTC insurance because the current model leaves plenty to be desired. Instead, he suggests companies consider a plan that mirrors guaranteed level term insurance products and insures around vulnerability, such as the years leading up to retirement, or ages 40 to 70.
“In the early years of retirement, if a LTC event happens, that could devastate a client,” says Fitzgerald, whose firm has $550 million in assets under management. “By the mid-70s, the likelihood is higher that they’ll need less, they’ll be more financially stable, their assets will have grown and there’s less time to live, so the need for insurance is much less than it is during those early years.”