2018 has been a different kind of year for Ron Hagelman and myself. Having totally failed at retirement, we’re in full consultancy mode working on projects that involve expanding long term care planning in two sorely-needed areas: 1) The mid-market; and, 2) Those who failed to adequately plan. Over the past 18-months, Steve Howard has been kind enough to publish my articles on these topics, (March, October and November 2017, and July 2018) so I won’t rehash those details.
Today I’ll share some of what I’ve learned and a vision of the path forward. I’m writing this article as I wait for a flight at Houston International Airport. So far this year I’ve flown 55 segments on American Airlines, and by the time you read this, I’ll have added at least six more. I’ve enjoyed working with many of our BGA friends and their agents in ways none thought of two years ago: Helping consumers cope with the long term care planning challenges they face.
Old Dogs and Old Ways of Thinking
The old ways of thinking about long term care planning and the products we use has gone full circle. When I first looked at traditional long term care insurance in the mid-1980s, it was designed to be a supplemental benefit. Generally tied to Medicare definitions and benefit triggers, it covered the gaps with limited benefits. Coverage broadened as consumer/agent demand increased and state regulators loaded on mandates. With HIPAA, long term care insurance moved aggressively from gap coverage to a full-blown asset protection estate conservation vehicle.
Don’t get me wrong, I was in the vanguard of this movement. Lifetime benefits, five percent compound inflation, limited-pay and tax-deductible premiums were my mantra for over 20 years. Bigger was better, and it worked well until the wheels came off the actuarial underpinnings of pricing. Slowly but surely, traditional long term care insurance started looking like the Black Knight in the much-loved Monty Python and the Holy Grail movie—parts (benefits) started falling off, but few wanted to accept that the game had changed.
The “cover the whole risk” mentality caused us to lose sight of the middle class and, in the end, we likely sold too much coverage to too few people. Please don’t misunderstand: Consumers who purchased those great 10-pay policies are very happy. They see their annual statements with $400+/day benefits growing annually and they have peace of mind. Those with annual-pay policies are struggling with cost increases, but at least they generally have good coverage and options to adjust premiums.
Today this leaves us with two choices: Keep flogging the big benefit approach or start thinking about how to create supplemental dollars to combine with other resources at claim time so people can receive the private care they need and want. The latter path is the correct one if we want to expand the long term care planning marketplace. It doesn’t mean that traditional LTCI is a dead letter, it just means that advisors and consumers need to get out of the old mindset, consider all options, and realize that something at time of claim is much better than nothing.
The other general theme coming into view is revolutionary, not evolutionary. We now can help consumers who are at the point of need. Never have we had an opportunity to help those already receiving care, bridge the gap between their income and the cost of care, and/or to “fence” the opened-ended hemorrhage of a family legacy; but more on this in a bit.
Life insurance policies with long term care or chronic illness riders are clearly the rage in our industry. Slap a 101(g) or 7702(b) on that old buggy and we’ve got a wiz banger, right? Well, sort of. Far be it from me to lecture seasoned life insurance professionals, but let’s remember there are always cost-to-benefit considerations in purchasing insurance.
Nothing is free and there are no panaceas. Sometimes a traditional policy is still more cost-effective than a combo, or a blend of combo and traditional may best suit a consumer’s pocketbook and future needs. Also, as a September 21, 2018, Wall Street Journal article about 1980s universal life policies reminded us, guarantees are important and it’s always better to under-promise and over-perform.
Allow me to move onto a topic that is related to my American Airlines Frequent Flier program. As I outlined in my July, 2018, Broker World article, we’ve been managing a demonstration project in Texas designed to test market the feasibility of Point-of-Need Care Funding. We’ve taken two tracks: With the help of several BGA colleagues in DFW and Austin, we’ve trained about 20 agents to work with assisted living facilities in their areas. The idea is to help consumers who failed to adequately plan for long term care. We are making steady progress toward replicating a model that is already successful in the United Kingdom, helping families and care communities find funds for care at the time of immediate need.
Additionally, we’re discovering agents that have existing clients and families struggling to pay for their own or a loved one’s long term care. The key is to provide advice and counsel on the best ways to stretch existing resources to make a known amount of money last an unknown amount of time. Sometimes merely asking a Boomer client if they are in the midst of a long term care event, or acting as power of attorney for someone receiving care, creates the opportunity for an advisor (and their BGA) to become a hero.
In many cases this is about saving a legacy. When I was a mere sprout in the life insurance business our “capital needs analysis” training called for a simple question: Do you plan to receive an inheritance? According to a 2014 report by Life Happens,1 76 percent of Americans expect a family inheritance to fund all or part of their retirement plans. However, according to an HSBC survey, only 56 percent of Americans expect to leave an inheritance with an average total of $177,000. Clearly, a divergence of expectations exits.
The Life Happens article enumerates a sad fact:
“While many Americans expect to leave an inheritance, there are many variables that may prevent this from happening. Older people often face unexpected hurdles and may require the money themselves to fund other things such as medical and nursing care in later life and, with increased life expectancy, they may outlive their income.”
With this in mind, many Boomers and Millennials2 expecting to live on their parent’s largess may be sorely disappointed. A recent online New Retirement3 article shares a number of “coping” mechanisms for seniors who are struggling to leave an inheritance for their loved ones. Of course, we all know that many people fail to plan for inheritance-destroying events. They and their family members discover, at the point of need, that their hoped-for legacy can evaporate as they struggle to pay for the long term care they can’t do without.
Many Americans who survive to age 65 can expect to need and use LTSS (Long Term Services and Support)—our estimates suggest this will be true for approximately half the population…. The average cost of this care is $138,000. However, a number of people can expect to need LTSS for many years and to have care costs that total hundreds of thousands of dollars.
— U.S. Department of Health & Human Services, February, 2016.
Can insurance agents and financial advisors help stop the bleed even after an unplanned need for long term care arises? Absolutely—by understanding how point-of-need care funding works and how they can make it an integral part of their insurance practice.
Those of us who came through the agent recruiting and training processes of the 1970s often worry about the future of our industry. We commiserate that fewer new agents are coming through the ranks to take our places. Over the past few months, however, I’ve had the opportunity to meet late-wave GenXer’s and early-wave Millennials who want to work with clients face-to-face to help them with their insurance and financial planning needs. There may not be as many of these “young pups” coming into the business as in our day, but with technology, hard work and our help, they can succeed in serving the current and next generations’ insurance needs. Please take every opportunity to mentor these young folks by sharing what you know and being a great coach. This will be our legacy to the future of our industry and our country.
Here’s wishing you all a happy and healthy holiday season.