As the COVID-19 pandemic continues to surge around the county, many Americans are looking into long-term care options and are shocked at what they’re finding. Many years ago, the underwriting criteria for long-term care was changed by the insurance industry leading to a significant increase in cost for those who were likely to need it. To make matters worse, increased longevity, higher health care costs and low interest rates made many LTC products too expensive to provide, and several insurers simply exited the market.
The international pandemic has been especially hard on assisted-living facilities, and many consumers are now looking for alternatives, such as in-home care. But the question still remains: How can you pay for it? For many financial advisers addressing this question, annuities have become a part of the solution.
“Due to the difficulty with pricing these types of policies, many insurance companies have gotten out of the long-term care business and many individuals have serious trust issues with long-term care insurance,” said financial planner, Mackenzie Richards, in a recent InvestmentNews article.
In addition to discussing the current market and the effect it has had on clients’ portfolios, it is also the responsibility of advisers to have the sometimes uncomfortable conversation about how to pay for care in the future.
“It’s a very emotional topic … [but] you don’t want to scare them,” said Marguerita Cheng, CEO of Blue Ocean Global Wealth. “Conversations should make people aware of the range of options they have, even those that are not ideal,” she added. “Clients appreciate that there are other options, other than ignoring it or buying long-term care insurance.”
New life insurance or annuity “hybrid” products are becoming more common as insurers try to address the top concern for clients nearing retirement. For example, DPL Financial Partners, working with Midland National, recently designed a fixed index annuity that includes a “health-activated income multiplier.” While this product does not include a long-term care rider, it does feature a rider that doubles the income payments for as long as five years when the contract holder can no longer do at least two of the six basic “activities of daily living.” This feature is similar to requirements in long-term care policies, and includes activities like bathing, continence, dressing, eatin, toileting and transferring in and out of beds and chairs.
“Insurance carriers haven’t been able to create good products around [long-term care],” said David Lau, CEO of DPL Financial Partners. “The underwriting has gotten so stringent – my joke is that if you’ve ever met someone who’s got Alzheimer’s, you probably can’t get coverage.”
The national average annual cost for adult daycare was $19,500 in 2019, according to Genworth Financial, while in-home service was more than $51,000. Assisted living costs ranged from around $49,000 to more than $102,000.
“Long-term care insurance is an option, not a solution, for a relatively small and defined segment of the population,” said Jesse Slome, executive director of the American Association for Long-Term Care Insurance. “That’s always been the case … The insurance companies know which segment of the population they are willing to offer this insurance to,” he added.
Every year about 325,000 people buy long-term care products, and recently those purchases have shifted toward hybrid annuity products. There are simply more options for clients now.
“We’re answering a bit differently than 10 to 15 years ago, when benefits were rich and premiums were (seemingly) reasonable,” said Dennis Nolte, financial adviser at Seacoast Investment Services. “For those who are in their 40s or younger we’re using Roth funds as a future benefit ‘pool’ of cash, in combination with HSA funds (if available). For those in their 60s or older who have coverage, we’re helping assess the options current carriers are offering as they either increase premium or reduce benefits. For those in between? Aye, there’s the rub.”
If you have questions about long-term care and how an annuity product might factor in, visit our website, www.annuityfyi.com. You can also call us at 1-866-223-2121 or email us at email@example.com with your questions and concerns.
Written by Rachel Summit