Long-term care risk management is proving to be a tough nut to crack in retirement circles, and it’s not just because of lack of awareness.
Countless barriers prevent consumers — and their advisors — from taking steps to manage the risk that long-term care (LTC) expenses might derail the consumer’s retirement security, according to a new report from Lincoln Financial.
But an intensive advisor and consumer education program can break through the resistance and inaction, said Andrew Bucklee in an interview with InsuranceNewsNet. Bucklee is head of insurance solutions distribution for Lincoln Financial Distributors.
An urgent issue
First, the report. It is suffused with urgency. Based on advisor estimates, clients who experience an LTC event but who do not have protection in place could draw down their retirement savings two or three times faster than planned, the researchers said.
Moreover, only 22 percent believe they are likely to need LTC, and 73 percent “significantly” underestimate the associated costs. The costs of LTC average up to $97,611 a year for a private room in a nursing home, according to Lincoln’s 2014 survey. For a 40-hour-per-week home health aide, the average annual cost is $42,000.
Even though advisors recognize the risk, the subject is a low-priority item in advisor-client discussions, the study found. For instance, only one in five consumers said they have discussed LTC planning with a financial professional, and only 17 percent own a long-term care insurance (LTCi) policy.
What’s more, most consumers said they obtained their LTCi coverage through an employer or on their own (online or direct). This may shed light on other findings in the study, such as the finding that fewer than one in 10 advisors has implemented an LTC solution for clients, and that most advisors place fewer than five LTCi policies a year.
“Unless you’ve experienced a long-term care event for yourself or a loved one, you may not realize the impact it can have on your financial security,” said Will Fuller in commenting on the study. Fuller is president of Lincoln Financial Group Annuity Solutions, Lincoln Financial Distributors and Lincoln Financial Network.
An event like this “can be one of the biggest challenges any of us will face in our retirement years,” he said in a press release.
The study details a stunning array of barriers that the hinder the greater use of LTCi solutions.
Many of these consumer barriers are familiar to insurance and financial professionals. These include the consumer beliefs that LTCi is too expensive, premiums might increase later on and the insurer might not pay legitimate claims. Other beliefs include perceptions that available solutions are confusing, family members will provide care if needed and self-insurance is adequate to fund LTC needs. In addition, many consumers believe they won’t need care at all.
Advisors face a full set of barriers, too, at least where selling LTCi is concerned. The researchers listed 16 of these barriers, starting with beliefs that the coverage is too expensive, the premiums may increase, clients don’t see a need, the coverage is not as important to clients as other things and clients don’t like to discuss the subject.
Still other barriers for advisors include underwriting issues, multiple product changes and lengthy sales process requirements.
The combined effect is that a lot of consumers aren’t taking any action to plan for LTC, even though they’re “scared,” Bucklee said. To that point, the survey found that fewer than 25 percent of consumers are confident they will be able to pay for LTC services. Despite these consumer fears, most advisors expect demand for LTC protection to increase, even though many types of LTC solutions are now available and some of those solutions didn’t even exist five years ago, Bucklee said.
What to do about it?
“The solution is education,” said Bucklee, indicating he means education of both consumers and advisors.
For consumers, education can include public forums on the need for, and the availability of, various LTC solutions. Providing media interviews helps too, and so does offering LTC seminars for clients. “We pack the house” at a lot of the client seminars, especially by people who have had parents or other loved ones who needed LTC, he said.
For advisors, carriers should look into providing a full complement of LTC education services, Bucklee continued. These include white papers, webinars, seminars, industry meetings, support from internal sales teams, and even, he added wryly, “in-office combat” (presumably with advisors who are reluctant to try). Some of this can get very granular, such as offering programs about how to open up conversation with clients about LTC.
Carriers also can provide tools for advisors to use with clients, he said. One example that Lincoln offers is a software program that shows the impact on a client’s portfolio when the client must withdraw money to pay for care.
Advisors who don’t have access to educational supports from a carrier can try partnering with third-party LTC experts on a commission-splitting basis, he added. Or, they can invite wholesalers to come in and provide assistance.
Bucklee is so fervent about the value of education because he says he has seen the impact. For instance, in 2014, he said, 30 percent of Lincoln Financial's sales of the MoneyGuard LTC hybrid product were from cross-sell leads. Education reached internally across the company’s entire wholesaling team, he said, and it found “traction with advisors who are selling other products like annuities.”
InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at firstname.lastname@example.org.
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