Because we're living longer, planning for long-term care expense has become a critical component of financial planning.
A review of financial goals and the valuable role that long-term care insurance can play in safeguarding assets and income sets the stage for long-term care expense planning.
Planning for long-term care expense requires that financial advisors consistently follow a defined process to be sure that key factors that lead to appropriate recommendations are reviewed with every client.
Here is a five-step process that provides a logical sequence of information and tasks to be completed.
It minimizes delays and declines.
Step One -- Requirements to Sell LTCI Products -- Licensing, Continuing Education and Appointment Requirements to sell long-term care insurance products changed with the Deficit Reduction Act of 2005.
Today, compliance rests with carriers.
They must be sure that producers are properly licensed and have completed continuing education (CE) requirements before appointments can be made.
Making the process more challenging is that states have different training requirements.
In all states, life and health/accident/disability licenses are required.
In addition, the majority of states now require Partnership training to sell any long-term care insurance product -- traditional pool-of funds, life insurance based or annuity based.
There is reciprocity among states.
Most will honor the CE requirements of your resident state.
But some states also require state specific CE to be able to sell LTCI within their state.
We recommend a review of licensing and CE requirements as the first step in the process.
A few states and carriers have pre-appointment requirements today.
In most states you can begin the long-term care expense planning process with clients prior to carrier appointment.
But be sure that your Partnership CE certificate(s) is dated before the date on any application that you submit.
Step Two -- Introductory Conversation and Health History The second step in the process is completing a health history.
It is health history that will determine insurability, carrier, product and ultimately the cost of a policy.
We need to understand height and weight, medical conditions and medications.
If there is a history of cancer we need stage, grade, treatment protocols and release date.
If diabetic we need A1c readings, most recent blood sugar level and medications.
When uncertain of insurability, we recommend consultations directly with carrier underwriters to be as certain as possible that we are quoting accurately and the policy will be issued as submitted.
There is no point in discussing coverage or a specific insurance solution if clients are not insurable.
At the conclusion of this second step, you're on your way to determine insurability, product type and request a quote.
Be sure to set the Education and Recommendation meeting.
You'll need about an hour for Step Three.
Sometimes at Step Two the conversation takes a different turn because you discover that a client(s) is uninsurable and self-funding long-term care expense depends on an investment strategy.
When one spouse/partner is uninsurable, it becomes critically important that the insurable spouse/partner has insurance coverage.
Step Three -- Education and Recommendation Educating clients about the issues surrounding long-term care is critical to the planning process.
Information includes risk, current and projected costs of care, how long-term care differs from traditional healthcare and the three funding options available to most Americans.
Once clients understand that both risk and costs are high, the opportunity to buy private insurance becomes an important risk management decision.
Projections from the U.
S.
Department of Health and Human Services, National Clearinghouse for Long-Term Care Information reports that 70% of Americans age 65 and older will experience a long-term care event before they die.
Consider that about 56% of long-term care claims last more than one year and the average duration is 3.
9 years.
Using today's averages the cost per person could range between about $170,000 for 44 hours per week of home care for 3.
9 years and about $303,000 for round the clock nursing home care.
(Forty-four hours of non-medical home care per week at $19 per hour for 3.
9 years and $213 per day for nursing home care for 3.
9 years.
Rates from Genworth Financial 2011 Cost of Care Survey - May 2011.
) People buy long-term care insurance for a variety of reasons and wealth is the key to motivation.
At lower levels of wealth, the motivation is access to care.
As wealth increases, the drivers become asset protection and quality of care.
At higher levels wealth transfer is generally the motivation.
Wealth and motivation in turn influence the coverage decision.
At lower levels of wealth, affordability is the key and people buy as much coverage as they can comfortably afford.
We recommend 75% of the cost of care and a four- or five-year benefit period as good coverage at the lower end of premium.
If a couple is applying together, a shared plan of eight to 10 years is recommended.
At higher levels of wealth, clients assume they can self-fund an average long-term care event.
We see two strategies emerge: 1) limit all exposure by insuring at 100% or more for six to 10 years as premiums are affordable and standard of living is above average or 2) plan to self-fund an average event and limit exposure to catastrophic loss by insuring at 50% for 10 years to lifetime.
Because you've reviewed financial goals and completed the health history, you now know if clients are insurable, the options available and which product(s) will best fit their needs.
Now you can make a recommendation with confidence and know that it is a meaningful solution.
Clients usually need a few days to assimilate the information, recommendation and cost.
We find it helpful to provide clients with copies of the quotes and A Shopper's Guide to Long-Term Care Insurance, an educational booklet published by the National Association of Insurance Commissioners.
Be sure to set the Application meeting.
You'll need about an hour for Step Four.
If clients are applying for a traditional pool-of-funds product which some refer to as the "pay as you go" product, it's important to set the expectation that the full modal (annual, semi-annual, quarterly or monthly) premium is required with the application.
This provides conditional coverage as soon as the application is signed.
It also eliminates having to collect funds after the policy is issued or potentially revisiting the decision to purchase LTCI.
Asset-based products are usually funded with large single premiums.
In this case we wait until the application is approved to fund the policy.
Often we are funding with 1035 exchanges from other financial instruments and do not want to disrupt current investments or create a taxable event if the application is not approved.
Step Four -- Finalize Coverage and Complete Application Oftentimes clients want to review revised plans or additional options to become comfortable with coverage and cost.
Once the plan design and premium have been decided you are ready to complete the application.
To prepare for the application meeting, we suggest that you complete the non-medical information in advance of this meeting.
This information includes name, address, birth date, Social Security Numbers, etc.
It's information that you already have.
Your preparation will help you to prepare your clients for the health information that they will need to provide to complete the application.
This includes names of medications and dosages as well as doctors' names, addresses and phone numbers.
It's also important at this meeting to set expectations for the application underwriting process which varies by carrier, product type and age of the applicant.
Underwriters may order phone health interviews with cognitive skills test, medical records, face-to-face interview, paramedical exam or a combination of these.
The underwriting process may take up to 90 days depending on how quickly medical records are obtained.
We recommend making copies of all application documents and required forms submitted for clients so they can review prior to the phone health interview or other underwriting requirements.
We also provide the Outline of Coverage, Partnership Policy information if appropriate, other state specific forms and the carrier illustration.
Despite our best efforts from time to time applicants are declined.
We think it's important to appeal each decline to be sure that the appropriate decision has been made and that it is based on the accurate interpretation of medical records.
Step Five -- Placement, Review Coverage and 30-Day Free Look This appointment is set as soon as policy documents arrive.
Reconfirm the valuable role that LTCI can play in safeguarding assets and income and supporting financial goals.
When the policy has been issued as submitted, review coverage, contract provisions, what information is contained in the policy and the 30-day free look provision.
Any required delivery documents are completed at this step.
Enhancements to coverage are generally honored during this 30-day period without additional underwriting.
When the policy has been issued with limited coverage or at a higher premium, it is necessary to review the factors behind the change(s) to be sure that clients fully understand the revised coverage and/or cost.
On occasion this may lead to an appeal of the decision or a revision in the offered coverage to more closely match the planned premiums.
It is our experience that this five-step process to long-term care expense planning simplifies a complex process for financial advisors and clients alike.
By reviewing licensing, CE and appointment requirements as a first step we can avoid delays in carrier appointments and application processing.
The introductory conversation covers the importance of planning for long-term care expenses as a component of holistic financial planning.
Completing the health history is critical to determining insurability, carrier and product.
Educating clients about the issues surrounding long-term care and what insurance covers is a critical step in the expense planning process and helps clients determine appropriate coverage.
Assisting clients to complete the application assures that the documents are complete and accurate.
Placing policy documents with clients affords a thorough review of coverage.
Just as important it is an additional opportunity to reconfirm the valuable role that long-term care insurance plays in safeguarding assets and income.
Copyright 2011 Nicole Gurley Reprint Rights: You may reprint this article as long it is printed in its entirety including the about the author information.
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