Have the courage to talk about LTC

It is the elephant in the room — the discussion no one wants to have. The subject isn’t pleasant, and the financial ramifications can be even less so. But as hard as it may be, financial advisers need to have the conversation with clients about long-term-care insurance, because it isn’t going to get any easier.

As InvestmentNews’ Darla Mercado reports in this issue, two of the biggest LTC insurance providers, Genworth Financial Inc. and John Hancock Life Insurance Co., which, combined, have about a 40% market share, have filed for premium increases ranging from 6% to 25%. Some market watchers expect the rate hikes to continue.

The problem is that the insurance companies did a poor job estimating how many people would keep their LTC policies, and as people with policies in force have aged, they have applied for more benefits than expected. Low interest rates haven’t helped, because insurers use the return that they earn on their bond portfolios to help pay claims.

Whether LTC insurance is a good product or a bad product, valuable or useless, is a hot topic of debate, but regardless, the specter of rising premiums is a distinct possibility for the foreseeable future. That means that advisers need to sit down with clients who already have LTC insurance policies and together figure out whether it is still a worthwhile expenditure.

The trouble is, no one really knows how high the costs are going to go or whether insured individuals will need to tap into their coverage. There is also the question of how long providers will remain in the market, because clearly, they aren’t making money on these products.

To be sure, the importance of having LTC insurance when it is needed can’t be overstated, and that is one of the main reasons why it is such a delicate balance.

HARD TO FACE REALITY

Also working against advisers is the fact that clients don’t really want to face the reality that someday — perhaps someday soon — they may not be able to care for themselves. But if advisers frame the discussion around the family and the importance of having a plan in place to ensure the financial well-being of loved ones, that can open the door and help the client approach the issue objectively.

Once clients take their emotions out of the equation — and that alone may take some time — advisers can then talk about key components of their LTC insurance, such as benefit levels and the cost of care, whether they can scale back their inflation protection or daily benefit amount, or even reduce their coverage, period. In addition, advisers should compare clients’ existing coverage to what is available in this changing environment, because chances are, they can’t replace their policy with one for a better price.

THERE ARE ALTERNATIVES

Finally, advisers need to remember that there are alternatives, and these should be fully vetted as well. Alternatives include life insurance with an accelerated-death-benefit rider, which pays when an insured individual has a care event or death, but has no inflation protection; annuities with LTC benefits, which provide greater benefit flexibility but have large upfront premiums and lockups; and products that combine life insurance and LTC coverage, which allow holders to multiply their death benefit amount, but come with stiff premiums.

These are difficult, sensitive and in-depth conversations, but to ignore the LTC question until a problem arises isn’t serving clients well.