Long-term care planning requires turning focus away from health

To make long-term-care planning palatable to clients, advisers need to break through clients’ false sense of invulnerability first.
Clients get defensive when talking about the possibility that they one day may become incapable of caring for themselves. That emotion applies to both primary earners and primary caregivers, said Harley Gordon, an elder-law attorney and founder of the Corporation for Long-Term Care Certification Inc.
The specter of needing care in the future “creates cognitive dissonance,” said Mr. Gordon, speaking at InvestmentNews’ seventh annual Retirement Income Summit in Chicago.
“Nobody wants to hear about having a stroke or ending up with [multiple sclerosis],” he said. Denial tends to set in and clients will cling to the belief that they could never have a long-term-care event or they could ignore the advice altogether.
Still, advisers can get those clients to change their outlook on care by contextualizing what’s really at stake: the physical and financial well-being of the client’s family, Mr. Gordon said. This is called “consultative engagement.”
“One of the most critical questions you can ask a client is: ‘Tell me what is important to you,’” Mr. Gordon said. “’What responsibilities do you have now that you didn’t think you’d have 10 or 15 years ago?’”
This refocuses the long-term-care discussion on the end impact on the family. Care events tear families apart, and they keep the client from being able to keep financial promises, Mr. Gordon said.
Even affluent families need to have the discussion of long-term care instead of believing that they could self-insure the risk with their own assets. The chief purpose of the assets — clients’ capital, really — is to generate sufficient income in retirement. That income stream is compromised when care events pop up.
“Assets don’t pay for care,” Mr. Gordon said. “[Care] is just another expense. Long-term-care insurance doesn’t protect assets, because assets don’t pay for care. Income does.”
Despite the fact that the long-term-care insurance industry is in considerable tumult due to low lapse rates, low interest rates and long life expectancies of claimants, Mr. Gordon noted that there are plenty of options for coverage aside from traditional LTCI policies.
However, all of those choices come with pros and cons.
Life insurance with an accelerated-death-benefit rider, for instance, will pay one way or the other, be it in a care event or as a death benefit. But there’s no inflation protection.
Annuities with long-term-care benefits also provide coverage with less stringent medical underwriting and greater freedom in how the benefits are used. However, those policies require large upfront premiums, and the money is locked up during the surrender period.
Asset-based products, which combine life insurance and long-term-care coverage, are open to multiplying the death benefit amount to cover LTC expenses. Unfortunately, these policies can require a lot of money upfront, too, Mr. Gordon noted.
“If there is a plan in place, you’ve given the kids a second gift of life,” he said.