Author: Peggy Haslach
Seven years ago, I was sitting in a training class waiting for the firm's Long-Term Care (LTC) expert to begin his session. I was eager to learn more on the subject because I knew that LTC planning was essential for LGBT and Women. I wanted to learn about how this expert integrated LTC insurance product into planning with his clients. When the trainer started the session, he talked about a case that got away from him. He was working with a very active couple in dog sports...wait, did he say dog sports?
I sat upright as he continued with his story. He told us he had had a meeting with the couple to discuss long term care insurance, but they kept pushing it down their list of priorities and instead spent their money on their dogs. I was starting to feel anxious about where this story was going. He continued, "before they got to that item in the list, they were in a terrible car crash." They survived the crash, but one was so badly hurt that she would be confined to a wheelchair and need constant care. By now, my heart had moved into my throat. I knew this story. I knew this couple. They were friends that I learned from competing in dog sports. I had heard about the accident. It happened a few months before we moved up from California. I knew the accident was financially devastating and that the dog sport community did their best to help the family. I never knew about the missed Long-Term Care opportunity.
Armed with this new information, I was bound and determined to talk to every dog owner I knew about Long Term Care. And the more I talked to people, the more I learned about the product and the planning.
One of the first couples that I met with had several dogs, and even though their financial advisor was not a big fan of the amount of money they were spending on their dogs, they did an excellent job of saving and had Life Insurance in place. But, they had not done any planning for Long-Term Care. They knew they would have dogs for several more years and decided that they wanted an LTC policy to protect their assets and allow them to receive care at home. They were both healthy and had great jobs, so they had no problem getting the policy's approval and paying for it. At this time, the policies were gender-neutral, and the couple received a discount because they were married.
The next dog owner I met was a retired teacher who had moved up from California to be near her father, who was in an assisted living facility. After watching how her father's care cost drained his retirement savings, she determined that she needed a policy. She did not have that much saved for retirement, but she did receive enough from her CalsTrs pension to live comfortably and afford the monthly premium.
Those first couple of clients were not complicated and were perfect for the stand-alone policy. They either had enough assets or income to make the policy suitable. Plus, their timing was good. Shortly after placing those policies, the insurance company, along with most other carriers, changed the policies to be gender distinct, and the cost for insuring females went up about 30%. In comparison, the cost for males went down by 10%. This was not the first big change in the industry and would not be the last. The industry has been changing rapidly since I first started working in the industry.
The History of Long-Term Care
Long-Term Care as a product is still relatively young. The first policies were introduced in the 1970s, but they did not catch on until the '80s and '90s. By the year 2000, 125 companies were selling stand-alone Long-Term Care policies. The companies that sold the policies did not think people would hold on to them that long. When the great recession hit, the baby boomers who saw their retirement savings drop and realized that the only way they would be able to afford care was to keep their LTC policies in place. Who wouldn't? The first sold policies had a lifetime benefit and offered a cost of living increases and premium increases that kept pace with inflation. We were seeing an industry that was trying to capture a market that was changing faster than they could change their product. We had the great recession in 2008-2009 as the first of the Baby Boomers were just entering retirement. The cost of care is skyrocketing, especially for women. And we are also seeing changes in family dynamics. We have more two-income families, same-sex couples, and single women who are trying to get care. That led those who had the policies to keep them and those who didn't have the policies to look for an option that they did not have to "use or lose."
Let me take a few moments to explain that last sentence. When the first Long Term Care Insurance policies hit the market, they were designed to be stand-alone policies. They were more like Health Insurance. That means that policyholders pay their premium, and if they have a claim, they will receive the benefit. If they do not claim and pass away before submitting a claim, the policy ends, and all the premium they paid is lost. That happens in the world of insurance. Think about your car insurance. You pay that premium year after year with the hope that you do not have a claim. The problem auto insurance is usually required by law, and most people have at least one claim during their lifetime. With Long Term Care, many people die without ever using their policy, and if they do use their policy, they may only use it once. For some, the premium cost can become prohibitive even if they can get approved for the policy.
The non-stop changes in the Long-Term Care industry put the companies who sold insurance policies in a hard place. Claims were starting to come in, and companies were seeing new sales of the policies decline. Only months before I sold my first policy was when the industry changed the rules to limit LTC benefits to 6 years for stand-alone LTC policies. Then, as I mentioned, we saw the policies move from gender-neutral to gender-specific. That did not help. To stay afloat, the insurance companies started increasing the cost of renewing the policies and often left the client with a choice of taking a significant increase in the premium or reducing benefits. Usually, it didn't matter what you chose because the next year, the insurance company came back with another cost increase/benefit reduction offer. As new sales were continuing to dwindle, many companies abandoned the stand-alone policies. They started to offer Annuity/LTC or Life/LTC Hybrid policies (a policy that allows the insured to use a portion of the death benefit for Long-Term Care). Other carriers dropped out of the LTC market altogether. We are now down to only a handful of carriers that sell stand-alone LTC policies.
That made many of the consumers get mixed messages about the need for Long Term Care planning. If they were young and asked questions about it, they were told they should wait until they turned 55 to get a policy. If they were older and would bring up the topic, some were told they would probably not be approved. Others who tried to get a policy had a bad underwriting experience or were not approved.
Focusing on Longevity Planning
It became evident that many male advisors were not comfortable having that conversation with their clients, especially their female clients. Having a challenging conversation about long term care was not easy if the client had gone through a divorce, treated for depression (a common issue with female veterinarians), or could not relate to needing this sort of care. Over 80% of the advisors are male, and many don't understand the burden of caring for a spouse or parent. So, if an issue came up in underwriting, they would drop the subject and move on. I will admit, Long-Term Care policy underwriting can be a challenging process for someone who has complicated health issues. For example, one female doctor was declined coverage because she had been exposed to Hepatitis C. She was very healthy. She could not understand why she could not get a Long-Term Care policy but could get Disability Insurance. The insurance company's concern was not while she was working because she could get routine tests. They were worried about her retirement. Hepatitis C is a disease that can flare up undetected until it causes damage to the liver. If she had memory loss or were not diligent about testing, then she would go on claim. That was too much risk to the insurance company. So, we had to develop a Plan B and instead put Disability Coverage in place to help her have an income until she retired. From there, we will have to come up with a plan to self-insure if she needs Long-Term Care.
Over time, I stopped focusing on the product and started focusing on longevity planning. This planning is especially necessary for women who outlive their spouses and LGBT who might not have a family they can count on for care. We start out by asking what they want to see happen if they had a Long-Term care event. How are they going to pay for it? If you cannot be approved for a policy or afford to pay for care, what are your options? Are you in a position to self-insure? Can we get one of the hybrid policies? Should we consider Life Insurance with a rider (additional benefit) to help cover the cost of care?
I also had to consider those who had purchased policies years ago. Some were good. Some were not. Many of them did not understand what they had purchased. When I reviewed the policies or renewal letters with them, we often had to develop a strategy of how we were going to make their policy work for them. When the renewal letter came and had a hefty increase in premium, we had to decide what to do. For one client, we declined the increase and took the reduction of benefit. Then we layered on a small annuity plan that would bring their policy closer to what they wanted.
This approach has worked well with my female clients. Now that we have gender distinct policies, older single women are often priced out of the stand-alone policies. If we opt to get LTC coverage, we are considering hybrids or Life Insurance with riders. My clients like them because they offer flexibility and more planning options. Plus, underwriting for Life Insurance is based on health and age, not the cost of care. Women live longer than men, so the premiums for Life Insurance are less. When it comes to Long-Term Care, that longer life expectancy means that insurance companies will be paying claims for higher costs of care over a more extended period. Couple that with the facts that women tend to earn less, save less, and may have gaps in their income if they took time off to have children or care for sick family members, and you can see why they would rather have something in place that would give them more financial flexibility.
COVID and The Rising Need for Longevity Planning
This year COVID has put a magnifying lens on longevity planning. Many seniors who have died of COVID were in senior care facilities, so people choose to get the care they need at home. Many others are also afraid to get the care, and the burden is often placed on the daughter, spouse, or another family member. This, working from home, homeschooling, childcare, has caused of 800,000 professional women to leave the workforce. Many of these women were the primary breadwinner for their household. We have already seen the effect this has had on the senior care facilities. We know that those who have lost will have a dip in their retirement savings. So no matter what we put into place now, we will want to make sure it gives us the flexibility to change if we have another year like 2020 in the future.
Before I summarize, I want to get back to that couple I mentioned at the beginning of this piece. I saw them a few years ago at an agility trial. When we started to discuss his wife's care and how the accident had affected his family. I asked him a question, "You've gone through all this, and you mentioned you worked with an advisor. If you could have done something different, what would you do? Would you have gotten that LTC policy?" He said, "No, probably not. We were doing some planning and knew that paying for a policy would not help us cover important things, like caring for our dogs. We could not justify spending money on a policy we might never use. And besides, the policy we were showed would only cover for care on a reimbursement basis of certain expenses. We knew we had many things that would not be covered by the policy like care for our dogs, college tuition, weddings, and other related expenses. Now that there are options that give you cash, that would have been much better because cash and planning were what we needed more than that policy at that time."
That is what I learned from that lesson that started seven years ago. Longevity planning and Long-Term Care planning are an integral part of a solid financial plan, especially for LGBT families. But you have to trust that the advisor you work with will help you find, what you want, what you need, what you can afford, and what you can get approved. They also need to give you options if you cannot get the type of coverage you want or need. It is helpful to work with someone who is an expert in working with someone like you.