Answering The Call: Long Term Care Planning For People Who Failed To Plan

    One thing is certain: When your phone rings and the client wants long term care insurance, it’s often too late to help them with traditional product options.  Or, when you get the call asking if you can still get coverage for their mom or dad because they just moved them into a care facility, your heart sinks.  The simple answer “no” doesn’t express the needed empathy in the situation, so you spend 15 to 20 minutes commiserating and encouraging them to get their own long term care planning squared away.

    Those who have failed to plan with traditional or linked product choices are generally faced with two options:

    1. Folks with modest means, intent on controlling the care they receive, must supplement their fixed retirement income by liquidating other assets to pay for care.  Two additional complications often raise their ugly heads: There is another call on the retirement income and assets, namely the healthy spouse;  and, liquidating an income-producing asset to pay for care reduces retirement income and may create a tax issue.  Talk about adding insult to injury.
    2. Wealthy clients may have the income and assets to pay for whatever care they desire.  However, an open-ended drain of treasure could negatively impact heirs or other family members for whom the client hoped to provide a legacy.  In this case it would be helpful to create a wall or stop-loss to protect that inheritance.

    One thing both these groups of consumers need is leveraged cash flow enhancement.  This is a knotty problem indeed, particularly since the horse has already left the barn!  The good news is: You may be able to offer solutions to consumers who face the costs of long term care without insurance (or without adequate coverage).  

    The financial planning instruments I’m about to share with you are not new, but they include innovations designed specifically for those in need of leveraged cash flow enhancement.  Before sharing details, it’s important to note that these aren’t your typical insurance product or sale.  In presenting these options, you may be working with family member(s) who hold the power of attorney for the client in need.  You should be mindful of other financial planning or legal professionals in the decision-making process; e.g. elder law attorney, stock broker, CPA, etc.  Finally, don’t forget the family members who aren’t in the decision-making loop but may be “expectant heirs.”  With this complex landscape, a word of caution is in order: Don’t be the “Lone Ranger.”  Make yourself part of the circle of advisors who are trying to help a client in need.

    The first opportunity involves a growing movement by State and Federal governments to provide consumers additional private funding options to pay for care.  A number of states have passed enabling legislation to encourage those in need to create Long Term Care Benefits Plans.  The funding vehicle for these plans are life insurance policies that are converted into life settlements.  What makes this different from your garden-variety life settlement?  

    • The converted life insurance policy used to fund the long term care benefit account must be placed in an irrevocable, FDIC-insured account that makes payments directly to the care provider;
    • The person must be able to choose the form of care they want;
    • A funeral benefit must be preserved—generally, the lesser of five percent of the face amount of the life insurance policy or $5,000 is reserved as a death benefit payable to the estate or beneficiary;
    • Any unpaid balance in the account must be paid to the estate or named beneficiary.

    According to Conning & Company Research, seniors in the United States own approximately $500 billion of life insurance. Many can’t afford the premiums as they get older, particularly if long term care expenses begin pressing on them. In fact, when they do stop paying premiums, they received less than 10 percent of the face value, and 88 percent of policyholders receive little or no value.  Thirty-eight percent need to liquidate their life insurance policies to qualify for Medicaid.  

    Market opportunities to consider include:

    • Owners of life policies $50,000+ in danger of lapse or surrender.
    • Families with immediate need to fund care for a loved one.
    • Desire to remain private pay versus Medicaid.
    • Applicants declined for long term care insurance.
    • Parents of clients who have purchased LTCI.
    • Financial advisors trying to help someone who needs care.
    • Individuals already in need of care.

    On another front, Genworth has introduced a single premium immediate annuity (SPIA) that is a new twist on an old idea. IncomeAssurance Immediate Need Annuity has its origins in Great Britain, where underwritten annuities specifically designed for enhanced cash flow based on mortality and morbidity were developed.  The profile for individuals suitable for this product are those previously discussed.  They need to maximize their income to pay for care, for however long they need it, and not run out of money.  They can also use IncomeAssurance as a stop-loss to wall off an unknown catastrophic risk. 

    Individuals aged 70 to 95 who are currently self-funding long term care expenses by liquidating assets can enhance their cash flow without endangering their entire nest egg.  They can also include annual cost-of-living adjustments to the monthly payouts and purchase death benefit options as a hedge against untimely death.

    What is the access point for reaching consumers with immediate need for care and cash-flow enhancement?  For those of us who have been in the long term care insurance industry for the past 25+ years, the answer may get caught in your throat: Individuals about to enter or already in care communities (assisted living or nursing homes) or receiving home care are the target market for these new long term care planning solutions.  Agents and advisors will generally not be working directly with the client in need.  Initial contact is likely to be made with care community personnel, e.g. facility administrators, sales representatives, home care service providers, financial advisors and the elder law community.

    Talk about an immediate need!  Care community professionals are working with families in need every day to determine the services required for an elderly loved one, and the omnipresent issue of how they’re going to pay for top-quality private care for mom or dad.  Recently, I spoke to the administrator of a 16-bed memory-care facility close to my home in California, to determine how often cash-flow-enhancement tools, as described above, would help him place a new resident.  His answer: Almost always.  And, even in a small facility such as his, this care community professional felt he’d have at least three referrals per month for an agent he trusted.  Here is something else to note: There’s tremendous competition among care communities to keep residency rates above 90 percent. Therefore this administrator sees these products as giving him a competitive advantage.  

    The financial instruments we are now working with are a game changer for consumers, care communities and insurance professionals.  In addition, agents who wish to become care funding specialists are making ancillary long term care insurance sales to family members of care recipients. To these people, the need to plan for the financial chaos of a long term care event is painfully obvious.  Now, you can and should answer “the call”!

    Do agents need special training to enter this marketplace?  Yes and no. Agents will need to have their state specific LTCI, annuity, anti-money laundering and life settlement/viatical training (if required by law).  Companies offering these financial instruments also require product specific training, mostly online.  Finally, since our organization provides access to care communities and elder law specialists, we require additional training and support in the areas of Veterans Benefits, Medicaid and how to work with third-party and power-of-attorney referral sources and the families they serve. 

    Let’s be clear: there is no substitute for long-term care planning for healthy people in their 50s, 60s or even 70s utilizing traditional or linked insurance products.  However, as discussed in previous writings over the past 18 to 24 months, new products and concepts are being created in response to an anemic traditional insurance market and an aging demographic of those who failed to adopt an adequate insurance program. These solutions can help people enhance and safeguard their cash flow when they require care, although they don’t provide the leverage of traditional insurance products.  

    Agents and advisors, like their clients, can run but cannot hide from the long term care planning need.  You currently have two new options that may answer the age old question, “What do I do now?” when consumers are declined for long term care insurance or they are already receiving care.

    The phone is ringing—answer that call! 

    Barry J. Fisher is a principal of Ice Floe Consulting, LLC, a consulting firm with extensive background in chronic illness risk management. In this role, Fisher works with insurance companies on product development, and with independent distribution organizations that want to expand and improve their ability to reach insurance agents and consumers in this vital area of financial planning.

    Fisher can be reached at Ice Floe Consulting, LLC, 179 Niblick Road – Suite 347, Paso Robles, CA 93446. Telephone: (818) 444-7750. Email: