It was a pleasure to share “Our Tale of Three Mothers” during our June 23, 2020 “Coffee with C3”.
We imparted fifteen minutes of insights to our group of Zoom attendees, at the same time, shared virtual coffee. Below is a snapshot of key insights discussed regarding the current long-term care (LTC) environment and the impact on planning.
What we knew BEFORE the pandemic:
- 3 out of 5 people turning age 65 will need LTC services;
- 3 out of 4 caregivers are female;
- Over half of caregivers say their LTC responsibilities impacted their jobs; and
- 9 out of 10 surveyed wish their advisors would discuss LTC planning.
Changes we see impacting planning:
- Increasing interest/focus on receiving in-home care;
- Expected continued increases in home health care costs;
- Care (and cost) in facilities is anticipated to change as new protections/procedures are implemented; and
- Question for high net worth is liquidity, not solvency. Liquidating assets can be expensive.
Questions for individuals and their families:
- What are your “must haves” for LTC?
- Do you have confidence in your current plan?
- Where & Who will provide care? How will they be paid?
- When was the last time you reviewed your various medical/directive forms?
Shifting LTC risk to insurance carriers:
- In the past, only “use or lose” products were available. Premiums were not guaranteed.
- New “hybrid” products offer a combination of LTC and life insurance coverage. Someone always benefits.
- Improved income tax strategies have enhanced funding options.
- Underwriting changes due to COVID-19 will certainly occur in the future.
- Continued low interest rate environment will have a negative impact on the pricing of long-term care products.
We hope you benefited from the information and look forward to collaborating with you!
Interested in the next Coffee with C3? Contact Rebecca Bates.
Todd: On behalf of Carolyn Smith and Celeste Moya, we would like to welcome you to the second edition of Coffee with C3. This morning, our topic is long-term care: the tale of three mothers. As many of you know, we try, in these 15 minutes, to bring something that’s timely, and of interest to you, that may be impacting you directly or indirectly. As I mentioned a minute ago, if you have questions, please put them in a question box. We’ll try to get to them during the call, and if not, we’ll reach out to you individually afterwards.
At one point, we thought of long-term care as a financial planning tool, and we’ve come to realize, as many of you have, that it is much more than that. It’s really a family of harmony tool, and as a way of keeping family members together when a loved one needs assisted care. For example, my mother-in-law is 97 years old. She lives in Tyler, along with my brother-in-law and sister-in-law, who also live there. Several years ago, she had to go into an assisted living facility. For the past several years, her long-term care policy has been picking up the expense of that facility, and that’s allowed her to maintain her dignity. It’s also allowed my brother-in-law
and sister-in-law to save an awful lot of their time and some of their expenses, which would otherwise fall on them, since they’re in that town.
So, it’s something that is near and dear to our heart. We’ve had personal experience with it. I know Carolyn’s had a couple of experiences, and I’d like her to share those with us now, please.
Carolyn: Thank you, Todd. My story begins in January of 1985. My dear grandmother dies at the age of 86. My mom, for three years, personally provided much of her care. The last two years were spent in a skilled nursing facility in Austin. Mom, being the oldest of five, took responsibility for paying the bills, which in this case meant finding a way to mortgage the family farm. Just one short month later, in February, my dad was diagnosed with cancer, and he died five months later at the age of 59.
We were fortunate with the help of 24/7 nursing care to provide his wish of dying at home. My mom now was sad, exhausted, and scared. She gathered me and my sisters, and said, ‘Please, help me. There must be a better way to plan for long-term care well-being.’ In public accounting at the time, I had recently read an article in the Journal of Accountancy, talking about a relatively new product called long-term care insurance. I did a little more reading, talked about it with mom and my sisters, and ultimately, Mom applied and purchased a policy. Then, she surprised us by saying to all of us, ‘Now, I can celebrate my retirement’ and oh, did she. With three grandchildren, her joy of volunteering, and fulfilling her promise to my dad that she would travel.
About eighteen years later, Mom’s health changed. With the help of a professional care manager, we found the perfect place for Mom in Austin. Money was of no concern; between her pension, Social Security, and long-term care insurance, we could find exactly what was right for Mom, and Mom was so proud that over the next 10 years of her care, she could continue to give to her church and give to her grandchildren as she had always done.
In 1985, we had a similar discussion about long-term care planning with my husband’s mother. My husband being an only child, we thought it only appropriate that we have that kind of conversation. Unfortunately, my mother-in-law was not open to talking about long-term care and certainly did not like the idea of us paying for a policy for her. When she turned 90, we were fortunate that my husband was in a position to take full retirement from the education system, because his mom needed him. She needed him to help provide her care and also provide financial support. Her savings, her social security, her retirement, they just weren’t enough to pay for the level of care that she needed. So, for the next two years, we were proud to be able to provide her with the level of care that she needed, deserved, and was comfortable with. We enjoyed spending time with her, but I can share with you the financial stresses would have been a lot less if we’d also had that financial tool of long-term care insurance.
Well some of the pre-pandemic statistics that I’d like to share with you, that I think echo in these stories, is that 70% of us who turn 65 will sometime in our lifetime need some type of long-term care services. 75% of those providing the care services will be female, and 63% said if they are one of the caregivers, providing care to their loved ones, impacts their daily ability to do the duties of their full-time job. Lastly, when surveyed, 9 out of 10 of us say ‘We wish our advisers would talk to us about long-term care planning ideas.’ So, Celeste, with that in mind, could you give us some thoughts about how to have the conversation with families and with our advisors about our long-term care planning goals?
Celeste: That’s a great question, Carolyn. Everyone, including insurance companies, is still developing information on what recovery post COVID-19 may look like. We’re not sure they will cause any ongoing health issues or how it may impact the cost of care in the future, but one key question that we do need to be asking ourselves is ‘What planning have I done in case the need for care arises?’ This is a conversation that needs to be had, not just with our advisors, but also with our family and anyone else that you want involved in your planning.
We do know that most people are being extra cautious and taking social distancing seriously, and this has resulted in an increased interest in receiving care at home. However, even pre-pandemic, the demand for home health aides was expected to exceed the number of that available, and because of the current situation and then the possibility of being exposed to a virus in a facility, that demand has increased. What that has caused is at home healthcare costs are also expected to increase. They were already projected to continue increasing, but now that this demand is heightened, that cost will more than likely increase at a much faster pace.
In-care facilities are also expected to have to implement new protection and procedures because of the virus, and that will more than likely also impact cost. So, there’s a lot of uncertainty regarding the impact of the virus, how it may accelerate or increase the need for long-term care, and what that care may look like and cost in the future. But, these are all things that we know now that we need to take into consideration, and the planning that we’re doing right now.
Another key thing is that our high-net-worth clients also need to consider long-term care planning. Many times they come to us and say ‘I can self-insure,’ and they probably can. However, there may be some financial exposure that’s not being considered. While clients may have the ability to self insure, frequently, what we see is they lack the liquidity. Determining whether to self-insure should be a question of liquidity, and not solvency. We all know that liquidating assets can be expensive. It can jeopardize a financial plan, ultimately, affecting things like retirement and legacy planning. However, a strategically designed long-term care policy or a long-term care plan, in general, can mitigate some of that financial exposure and provide tax-free benefits.
Todd: We’d like to challenge you with three questions we’ve asked ourselves. Number one: How much confidence do you have in the plan that you currently have or your family has? Secondly how much clarity do you have on what you want that plan to do? For example, if you’ve got a caregiver that comes in, who’s that caregiver going to be, and who’s going to pay that fee? If you don’t have the ability to take care of yourself, who can step in? Who’s an agent that can step in and make decisions on your behalf? And, the third question we would ask you to consider is, who’s going to be impacted and how will they be impacted if you don’t do this planning, and the possibility is there, and you become disabled and unable to take care of yourself. Who is going to be impacted and how?
With that I’m turning back to Celeste and ask, over the years, we’ve seen many of our clients turn over their risk for early premature death to a life insurance company. We know there’s some options for that with long-term care. Can you explain what those options are and also how those options have evolved over time?
Celeste: Absolutely, so in the past, the only option, really, was standalone long-term care, and it was set up as a ‘use it or lose it’ policy. Additionally, premiums were not guaranteed and many of these policies experienced really substantial increases over the years, many double-digit increases. Today, we have hybrid long-term care policies – that’s kind of how we would refer to them – because they offer a benefit, whether it’s used for long-term care or not. They allow you to maximize your long-term care coverage while still providing a small amount of death benefit.
So, if you never use a long-term care benefit or only use a portion of it, a beneficiary can still receive the remaining proceeds. It’s no longer use it or lose it. With many of these policies, premiums are guaranteed, and that provides an additional level of security. The benefits are tax-free, as long as they’re used for qualified long-term care expenses. There’s other great features, such as inflation options to keep up with the rising cost. There’s multiple benefit duration options, there’s couples discounts, and with some of these newer policies, they even allow family members to provide the care, and be compensated. Independently licensed individuals could be compensated. But hybrid policies are only one option.
There are also life insurance products with long-term care benefits via a writer or essentially an addition to the policy. These also allow you to primarily maximize your life insurance coverage, and long-term care is a secondary benefit in these policies. They have many similar features to what was just described in the hybrid policies.
There are also annuities that offer a long-term care benefit. We’re seeing regular annuities being rolled into these annuities with long-term care because the insured can continue that tax deferral during their benefit period. The benefits are tax-free, and once again, it offers many of the options that I described with a hybrid policy, including not being ‘use it or lose it’ because any remaining proceeds can be left to a beneficiary.
As we discussed on our last Coffee with C3, we have seen these increases, not just in life insurance but also in long-term care due to the continued low interest rates. We expect that there may be some medical underwriting changes due to COVID-19. Perhaps there may be some additional questions. There might be some declines for those that have had COVID and some other things that we don’t even know of yet as far as questions or changes in the medical space. With all that said, we still have access to very competitive products, competitive premiums, and flexible design options that can fit into your specific long-term care planning.
Carolyn: Celeste, thank you so much. We know that you may have questions that we haven’t touched on today in our time limits, so please don’t hesitate to add them to our question box, and we will get back with you.
I hope that you see that long-term care is really a family discussion, and we hope that you will have that discussion with your advisors and with your family. Then, as we said before, we hope if you take nothing else away from this today, that you’ll take away these three points: review, review, review. It’s just as important in your long-term care planning as we see those changes happening.
We wish all of you a happy and safe 4th of July, and certainly, wish all of you to stay safe and happy and healthy. From all of us at C3, we look forward to collaborating with you.