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: April 17-21
Here’s a look at the Top 11 Most Viewed Articles of the Week on IRIS.xyz, April 17-21, 2017
Click the headline to read the full article. Enjoy!
Like so many others in the industry, I was wrong. For years, I was certain that the bull market was nearing its end. I thought the market was over-extended, and that, surely, the wild equities run was coming to an end. But everyone else was bullish, and perhaps rightfully so. And while I’ve watched equities continue on their spectacular rise, I do think now is the time (really!) to put a hedge in place. Here’s why. Here’s how. — Adam Patti
The realities for fixed income investors have changed. How is this being reflected in markets? Bond investing has become increasingly difficult over the past decade. Markets have been heavily distorted by ultra-low interest rates and quantitative easing, as well as by extreme risk aversion in response to the global economic crisis and the eurozone debt crisis. — Nick Gartside
Is being a financial advisor worth it? I am an optimistic person and I encourage other people to keep a positive mental attitude (shout-out to Napoleon Hill and W. Clement Stone). However, by taking a good, hard look at the negatives in life, we can successfully pivot towards the positive aspects that will help us achieve our goals. — James Pollard
How do you treat one of your most valued, existing clients? Here’s a list of some things that come to mind. — Andrew Sobel
According to many advisors I speak with, the only clients that leave are those who have died. And while attrition may not be a big problem in this industry, I have to assume that at least a few clients change advisors without doing so via the funeral home. — Julie Littlechild
I was talking with an advisor last week about how to get into conversations about what he does. He was relaying the story of going jogging with a friend who could be a good client but is, more importantly, connected to a large network of people who fit this advisors ideal client description. — Stephen Wershing
Big picture thinkers are not unicorns - rare and mystical. And they were not born with the innate ability to think big. They do, however, pay attention to the broader landscape and take the time to think, analyze and evaluate. — Jill Houtman and Danny Domenighini
Your reputation is who you are and how you show up, Monday to Monday®. Many of us take our image and reputation for granted. Give careful thought to the kind of reputation that you would be proud of Monday to Monday® and that would resonate with your purpose and priorities. — Stacey Hanke
The generational changing of the guard is a fact of life as old as time. Young replaces old in responsibility, importance, control and culture. Outside of the family, the workplace is perhaps where this is seen most regularly by most people. — Shirley Engelmeier
Next time you hear your prospects give you price objections, it’s not because of the price. The give price objections because they don’t know the full value proposition that they’d be paying for. And it’s not based on their need, or your features and functions. It’s based on the buying criteria they want to meet internally. — Sofia Carter
Last week we wrote about the economic rationale behind going independent vs. moving to another major firm as an employee. As a follow-up topic, we thought it prudent to analyze transition packages attached to big firm moves and peel back the layers of the onion to show the components of these deals. — Louis Diamond
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