Long-Term Care Takes Backseat on Client Priority List

Advisors need to explain the need for long-term care, as well as educate themselves on the complex long-term care products on the market.

This Practice Management article is intended for financial advisors only (registered representatives of broker/dealers or associated persons of Registered Investment Advisors).

 

Advisors are falling down on an important job: they're not talking to their clients about long-term care and the potential negative impact it could have on their clients' retirement plans.

In a recent survey of advisors and consumers, Lincoln Financial found that only 42% of advisors have discussed long-term care with more than half of their clients; a mere 18% have discussed it with more than 75% of their clients.

Advisors may be reluctant to address long-term care with their clients for a numbers of reasons, the most obvious being the awkwardness of bringing up such a difficult topic. They also may want to first address their clients' primary concerns, which the survey says is saving for retirement and minimizing taxes.

Whatever the reason, clients are woefully unaware of their long-term care risk. Of the 1,186 adults surveyed, only 22% believed they were likely to need long-term care in the future. One-third envisioned others—namely, their parents, spouses, and other family members—as one day needing long-term care services. 

In fact, there's a far greater likelihood that they and their family members will need such care. According to the Center for Retirement Research at Boston College, 58% of women and 44% of men will need long-term care during their lifetimes.

Ironically, healthy people are those most at risk. "It's precisely the healthy who are going to live a long time that are more exposed to the impact of aging," said Mike Hamilton, a vice president at Lincoln Financial and head of the MoneyGuard Product Management.

Consumers are also in the dark about the cost of long-term care. The majority (73%) estimated that nursing homes cost less than $75,000 annually, when in fact they cost $97,611, according to Lincoln Financial. Almost half (49%) thought nursing homes cost less than $50,000.

"You can see how these unplanned-for events can seriously impact retirement goals and legacy plans," said Steve Schoonveld, the head of Lincoln Financial's Linked Benefit Product Solutions.

Many consumers also mistakenly believe that Medicare or their health insurance will cover their long-term care expenses, with more than half considering them as funding sources.

"The reality is that Medicare only covers medically necessary care, focusing on post-acute, short-term services," said Schoonveld, adding that health insurance plans are equally limited in coverage.

"If they offer long-term care services, it is typically only for skilled, short-term, medically necessary care," Schoonveld said. 

Not surprisingly, a strong majority of advisors listed healthcare and long-term care costs as the most difficult risk to manage in a client's retirement income plan. In addition to getting clients to face the inevitability of needing long-term care, advisors need to educate themselves on the complex long-term care products on the market, each with its own costs and benefits.

"If the advisors don't know about the full range of solutions available to them, that's where it can make the challenge more difficult," said Hamilton. "If you've only got one tool in your backpack to bring out, you're not going to be able to cover a wide variety of situations."

The survey polled 1,186 adults 18 or older, and 373 financial advisors with five or more years of experience and an average client portfolio of $100,000 or more.

—Margarida Correia