The costs of long term care are back on the rise, surging 4.5 percent this year alone to almost $100,000 a year for a private room, according to Genworth Financial. It’s a cost most families don’t contemplate until it is time to start paying for care and, by then, it can be too late.
The United States is facing a financial crisis driven by generations who have “failed to plan” for retirement and the long term care that 70 percent of those over 65 will need according to the Department of Health and Human Services. Families can quickly run through savings and investments trying to provide care for a loved one as they face a bewildering world of programs and choices among the public programs, the care options and the investing opportunities.
Without knowledge, professional guidance and a strategy, the most painful part of getting old isn’t the aging process—it’s figuring out how to pay for it. What follows is a guide to counseling families through the process of planning for long term care.
Understanding the needs of an aging population
Long term care is a family endeavor—everyone is involved and everyone plays a unique role. Recognizing when someone needs care and then understanding the role each family member can play are important tools for advisors.
In many situations the need for care will creep up on a family, and people realize they have assumed caretaking duties that take up more and more of their time and resources.
Warning signs that the time has arrived for professional long term care of a loved one:
- Physical Deterioration: Significant weight loss, balance issues and falling, loss of strength and stamina, and other losses of “activities of daily living” such as the ability to shower or toilet, dress, or eat independently.
- Mental Deterioration: Cognitive deterioration is an important warning sign. Be on the lookout for dementia and Alzheimer’s. These conditions can worsen quickly and can lead to many physical breakdowns and safety issues.
- Lifestyle Deterioration: Is the home not being kept as neatly as in the past? Are things oddly out of place (a house plant in the fridge, pots and pans in the bathtub)? Are there signs of physical damage (the car crashing into a fence or the wall of the garage, burn marks on the kitchen wall from a flash fire)? Long term care is both a matter of healthcare and of safety.
Over the years, family members gravitate naturally to roles that fall into several stereotypes that often prove to be highly accurate descriptions of their roles. Knowing where they fit can be very helpful in your approach to meetings and communication.
Family Stereotypes:
- Caretaker—Provides care for the loved one at home and, without realizing it, becomes a fulltime caregiver. Usually this is a spouse, or an adult child—most often a daughter.
- Bookkeeper—Focuses on the financial aspects, trying to determine what assets or insurance policies are available to help with the costs of care.
- Chauffeur—Drives the loved one to appointments, runs errands, makes grocery runs and eventually may drive the aging loved one to tour assisted-living facilities.
- Guardian—Takes on such roles as power of attorney or trustee, assuming the legal responsibilities within the family.
- Denier—Can’t accept or admit that the loved one, or they themselves, need care.
- Know-It-All—Most annoying of all—constantly questions decisions, or lobs suggestions from the backbench, but isn’t near the situation or involved hands-on.
Failure to Plan
Over their adult lives, people are repeatedly warned to plan for the future. But the reality is that too few actually heed the warnings, and they don’t secure insurance or financial products that can mitigate their future risks. The good news for the majority of people who find themselves in this predicament is that there are solutions to help. One of the fastest growing areas of funding long term care is in the area of crisis management. There are “point-of-care” tools available to families that can help pay for the costs of care at the time that they are needed. One tool that is becoming more prevalent is exchanging life insurance policy death benefits through the secondary market and converting them to living benefits. These are structured vehicles such as long term care benefit accounts or an Xchange Annuity that will pay for the costs of senior retirement living and long term care.
Instead of abandoning the policy or providing a benefit upon death, it can be exchanged for living benefits that protect loved ones while the owner is alive. Living benefits help an insured:
- Avoid becoming a physical or financial burden on a spouse or children;
- Avoid the physical and financial toll on family members being forced into the role of a caregiver;
- Avoid the sudden disruption and resentment this will cause throughout the family; and,
- Stop the drain of income and assets that supports the family today and into the future.
The irony for people who reach the point that they actually need long term care is that their advanced age and levels of impairment increase the value of their life insurance policies’ secondary market exchange value. Once someone enters the long term care continuum, his or her remaining life expectancy is likely to compress due to a combination of environmental, attitudinal, and health factors. Because of this, the owner of a life insurance policy with an immediate need for long term care is typically valued higher for the exchange of their policy, making available more private pay dollars. Anyone who would be declined for life insurance or on claim with a long term care policy is actually the ideal candidate to exchange his or her life insurance policy to pay for long term care.
Finding the Solution
There are less than eight million long term care insurance policies in force today, but there are more than 150 million life insurance policies. The challenge is to educate life policy owners about their living benefit options before they lapse or surrender a policy. According to the 2016 Conning Life Settlements, Secondary Annuities, and Structured Settlements report it is estimated that on an annual basis $185 billion of death benefits owned by seniors will likely lapse or surrender without owners considering the option of using a policy to pay for long term care. This is a massive asset pool that could be used by families to help pay for long term care costs that goes to waste.
Life insurance policies are one of the most valuable assets a person will ever own. Think of life insurance like a home: People make monthly mortgage payments for years and would not abandon the home when they reach retirement age. The same is true for life insurance: After years of premium payments why would the owner abandon this asset?
A failure to plan does not need to be a death sentence. By understanding when people need care and how to work with their family members, opportunities to present solutions at the point of care will arise. A family that is confronting long term care for a loved one is looking for immediate solutions to two primary questions: What is the best form of care, and how do we pay for it? Brokers who put themselves in a position to answer these questions and bring solutions to the table will establish themselves as a lifesaver with the family. From there, the broker should expect to keep busy helping other family members set themselves up so they, too, do not get caught in the “failure to plan” trap.
