In Plain Sight: An Important Tool for Advisors with Clients in Need of Long-Term Care
Financial advisors work diligently to help seniors achieve post-retirement safety and security. But there is one area of financial planning that has become so great a concern it has, literally, been labeled an American “crisis”: The Long-Term Care Crisis.
While news outlets, government agencies, and researchers ponder how to change the course of this crisis, there is one fact advisors need to know: selling a life insurance policy can be a solution for many seniors who need to fund long-term care services and supports.
But first, some background on the crisis:
The PBS Newshour ran the sobering feature, Why Long-Term Care for U.S. Seniors is Headed for ‘Crisis’, reporting that 70 percent of Americans age 65 or older will need some form of long-term care for at least three years during their lifetime.
A Yale University study called the long-term care crisis the “older brother” of the health care crisis, presumably because they have the same parents – ignorance and inaction. The report, citing a major public research survey, found that “two-thirds of Americans over 40 have done little or no planning for their care needs. Three-quarters think their spouse will care for them, and almost half think their children and grandchildren will care for them.”
A 2016 report by HealthView Services on the costs of long-term care estimated that a healthy couple aged 65 who retire today will need almost $300,000 to pay for their health care services, or more than half of their social benefits for the rest of their lives. The costs skyrocket when serious health conditions emerge.
The US Long-Term Commission’s 2013 report to the President and Congress outlined the severity of the crisis and categorically listed some 28 recommendations, of which almost none have been addressed.
Compounding this crisis is that long-term care insurance, which was popular among Baby Boomers just a few years ago, has largely gone away, with more than half the top insurers abandoning the market and raising premiums beyond the ability for policyholders to afford them. The high costs of health care delivery and the sustained low-interest rate environment have made it impossible for insurers to offer reasonably priced premiums.
How will Seniors Pay for Long-Term Care?
The need for costly long-term care services and supports can be unforeseen and immediate. For more than 75 percent of nursing home residents, entering the facility was relatively unexpected, with an injury or illness making it impractical to return home or care for themselves. And the first question they’re asked when arriving at a facility is a big one: “How do you plan to pay?”
The problem, of course, is that the majority of people haven’t planned to pay. The vast majority of Americans have neither budgeted nor saved for their own long-term care. And while Medicare (and the alphabet of supplemental plans) can cover a significant chunk of a senior’s health care costs, few realize that Medicare does not cover long-term care costs.
Medicaid, however, does cover long-term care costs (but, importantly, not all). But, in order to receive Medicaid, the senior has to exhaust a significant amount of their financial resources—retirement savings, inherited property, money in the bank, etc.
Importantly, in all but a handful of states, in order to qualify for Medicaid applicants are forced to terminate their life insurance policies to access any significant amount of cash value those policies may have in order to spend that money down before they are eligible for Medicaid. Even if the policy has little or no cash value, it is either impractical or impossible for the senior (or their spouse or children) to maintain the policy.
In other words, billions of dollars of life insurance are lapsed or surrendered by arcane Medicaid rules that force seniors to terminate their policies.
Advisors and the Long-Term Care Crisis
It is against this backdrop that financial advisors have to try to help seniors build a “nest-egg on top of a nest-egg” just so that long-term care needs can be met.
This is where selling a life insurance policy for its fair market value can be a life saver for seniors and their families. Selling – rather than terminating – a policy and using the proceeds from the sale to pay for long-term care has numerous benefits.
For one, having their own money means the senior can choose the level and type of care that best meets their needs. It may be most appropriate for the individual to receive care at an assisted living facility but, in most states, this isn’t an option for recipients of Medicaid. It may also mean that an elderly parent doesn’t have to move in with their adult children. It means, too, that they don’t have to rush to sell off assets just to pay for long-term care.
Most Read IRIS Articles of the Week: May 22-26
Here’s a look at the Top 11 Most Viewed Articles of the Week on IRIS.xyz, May 22-26, 2017
Click the headline to read the full article. Enjoy!
I know Gen Y are stereotyped as being transient, digital natives who are impossible to capture, but that is just the world we live in today. Technology has caused a proliferation of advancements and the financial services industry is (or should be) feeling the pressure ... — Missy Pohlig
Combining an alternatively-weighted index with a multi-factor stock screening process can diversify uncompensated risk, potentially leading to less volatility in down markets and an overall smoother experience for investors. But what are factors and why should they be a major consideration for every ETF investor? — J.P. Morgan Asset Management
There is something gratifying about jotting down all the things you need to do. It quenches one’s thirst for being organized and for wanting some control over one’s life generally complicated by too many things to do with insufficient time and financial resources to do them. — Roy Osing
College graduation is a time of celebration and pride. It’s also a time of significant financial transitions—for new graduates as well as their parents. As an advisor, this is a great opportunity to connect with your NextGen clients to help them make smart decisions that position them for greater financial success throughout their working lives and even into retirement. — Laura McCarron
Let your prospects see what working with you will be like, including exactly who will be holding their hand along the way. — Paul Kingsman
How should investors feel with all the advances in robotics and technology in our industry in the near future? — John Alshefski
Want to know how to grow your business fast? Discover here two things that you need to smash in order for you to take your business from startup to a great business. — Stewart Bell
Unlike many other industries, most people in finance confront the reality on a daily basis that a market downturn they have no control over could cast them out onto the street. — Sara Grillo
One year after I risked everything to launch my own venture, I penned a short article chronicling my journey up to that point. One commenter responded with near-vitriol, wondering how I could be so misguided as to influence – encourage, even – others of my generation to take on extensive levels of risk in order to successfully launch a new business. — Brian Hart
People are automating hellos and introductions instead of taking 3 seconds to personally do it. Folks are requiring followbacks if they give you one. Everyone believes that ads are the answer. And business owners think they know what’s best for their social channels. — Ahna Hendrix
Business growth doesn’t come from wishful thinking. As you know, it takes a lot of hard work. The growth of your business is not an option – it is a necessity. Coordinating the right mix of strategies to gain market share and improve client acquisition rates is essential to advance your firm in today’s economy. — Michelle Mosher
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