As all of you know, long-term care insurance (LTCI) is not for everyone. But if you don’t at least discuss the topic with your clients and document your conversation with those clients, you may be in for a rude (and expensive) awakening when one of your clients needs long-term care, is not covered, and her son the attorney wants to know why. Or another client is inadequately covered, or is covered but shouldn’t be.
Who should not have LTCI?
Those who should not have LTCI are those who cannot afford it. A little coverage can be worse than no coverage it all. If a consumer has LTCI, he usually cannot qualify for Medicaid. Even if the care facility costs are $300 per day and that person is only covered for $50 per day, he probably cannot get Medicaid.
If he is paying the premiums now out of earned income, how will he pay them after he retires? While there is always a risk of needing LTCI before retirement, it may not be reasonable for someone to start paying for a policy that cannot continue paying for. However, there are options like 10-year-pay or pay-to-age-65 that should be considered.
Also, consider the children of the prospect you wish to sell LTCI to. If the prospect can pay now, are the children willing and able to continue the premiums for him after he retires? Knowing that their parents will have to rely on them for long-term care or that their inheritances could be decimated without LTCI, this may be a viable solution. Those payments may seem quite small many years down the road when they are divided among the children. Be sure that these children are named as the ones to contact if premiums are not paid. If the parents do have to rely on their kids, they will know that the children themselves participated in that decision. Document that information.
No one is too rich for LTCI
LTCI not only protects the client; it protects the client’s money as well. However, if the client has no heirs, the issue becomes less important. By heirs I mean someone to whom they dearly wish to leave assets when they die—be it family members, charities or scholarships.
If that money doesn’t need protection, then the only question is whether the client has enough money to self-insure. If so, he may not need LTCI but may want it for peace of mind. Never discourage anyone from buying it because that person is too wealthy—that’s just asking for trouble later on. And, once again, document the information.
The proper plan
If LTCI makes sense for your clients, you must take the time and effort to design and craft the correct plan—one that meets their specific needs. Here are some factors to consider:
- Benefit period and amount: Make sure the benefit period and amount address your clients’ concerns. Alzheimer’s patients can live a LONG time needing constant care; heart attack victims are not as likely to. Remember that home care may be less expensive, thus extending the benefit period based on the pool of money available. Also, with insurance paying for their care, client assets have time to grow.
- Medicaid planning: Time is of the essence when planning for Medicaid. Many facilities have a waiting list for Medicaid beds. If your client has been in private-pay care (through insurance or on his own) for a few years, he is more likely to get the next available Medicaid bed in that home. Make sure your client gets on the waiting list in time and chooses a facility that accepts Medicaid.
If this plan also involves divesting the client of assets or converting the assets to exempt assets, be sure that someone is properly designated and has the necessary documents (power of attorney, etc.) to implement the plan once care begins. Once again, document this information.
Be sure that these transfers are made in time—that is, they are made prior to the “look back” period. Of course, care must be covered during that period, either through insurance or on the client’s own. Remember that Medicaid only covers skilled care in a facility; it does not cover any home-care benefits.
- When one spouse needs care: If one spouse needs long-term care and the other doesn’t, you have to factor withdrawals for living expenses for the community spouse into his or her financial plan. Shared LTCI benefits are a huge plus here and can reduce the premiums significantly. If each person has four years of LTCI coverage but only one spouse needs LTCI, that spouse can have it for eight years by sharing the other’s benefit.
Be sure to discuss survivorship benefits as well. Know that some companies define a couple as anyone who has lived together and shared expenses for a given period. They don’t necessarily have to be husband and wife.
- Inflation protection: Inflation protection is a must. Should it be compound or simple? The choice depends on your client’s age, but with increasing life expectancies, any choice but compound is a big risk for you and your client. Built-in vs. add-on-later features keep premiums more constant and prevent the policyholder from dropping that protection unintentionally
Pam Hesselgrave is a Certified Financial Planner® and a Certified Senior Advisor in Denver, Colo. She can be reached at firstname.lastname@example.org.