Long-Term Care
Managing Longevity Risk with Long-Term Care Insurance
by Richard Alvarez

Is financial services professionals, we constantly strive to help our clients manage risk, most obviously the risk of death and disability. But a less-understood risk is emerging as a threat to even the best-laid financial strategies -- the risk of longevity. Baby Boomers worry about outliving their retirement savings. But longevity has other implications -- not the least of which is this: the older we get, the more likely we are to need long-term care.

By 2020, the number of Americans 65 and older is projected to exceed 54.6 million, up from 35 million in 2000, according to the U.S. Census Bureau. The odds of needing long-term care increase with age, according to a 2007 report by the Health Insurance Association of America. The cost of that long-term care can be staggering. Even if your clients don’t need nursing home care, the cost of in-home care can drain retirement savings and scuttle any plans for loved ones.
Just as longevity poses risks, it also creates opportunity for financial professionals to educate, create sounder strategies, identify new prospects, and align with strong carriers. Here are some areas of opportunity:

1. Educate Prospects And Clients About Longevity Risk. Use some of the eye-opening facts above and explain common misconceptions. For example, Medicare does not pay for unskilled nursing care, such as bathing, eating, and other daily living activities. This is often the kind of care that people need most. Help clients understand that they would need to meet Medi-Cal’s guidelines for income and assets to have access to Medi-Cal- eligible nursing homes.
2. Redefine their understanding of long-term care. People often think long-term care is limited to nursing homes. But long-term care usually occurs in the home or in a community-based setting.
3. Make clients aware of the cost of procrastinating. The cost of long-term care insurance usually rises as we get older along with our chances of becoming uninsurable. One in nine people who would pass underwriting screens at 40 would fail at 65, according to a 2003 report by the Kaiser Family Foundation.
4. Make long-term care insurance a fundamental part of every strategy. Clients are often content with a collection of components rather than an integrated financial planning strategy. Long-term care insurance is easily postponed when it’s viewed in a compartmentalized fashion. It becomes much more compelling in the context of more comprehensive strategies, such as preservation of retirement income, asset protection, and wealth transfer.
5. Be open to younger prospects. Don’t assume that the buyers of the past are the buyers of the present and future. The traditional long-term care insurance candidates have been in their post-retirement years. But younger prospects are increasingly purchasing long-term care insurance.
6. Look to the worksite. Educate your group plan buyers about the risks of longevity. Workers are often the ones providing care to their loved ones -- think “sandwich generation.” Employers also bear the cost of long-term care when a worker needs to take time off or resign due to caregiver issues. By providing access to individual long-term care insurance on a voluntary basis, employers can help themselves and give their employees access to a valuable benefit often at a discount. This benefit extends to family members as well.
7. Pick the right carrier. A lot has been written about long-term care insurance carriers in recent months, not all of it good, particularly in relation to sudden increases in premiums. Choosing the right carrier enables you to sell with confidence. Consider a mutual company with strong financial strength ratings whose structure makes it ideal for permanent and dependable solutions.
For centuries, humankind has sought the fountain of youth. Now that we’ve found it, we have to pay for it, but we don’t have to exhaust all our resources doing so. With long-term care insurance, you can help your clients address the under-recognized risk of longevity.

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Richard Alvarez has been in the financial risk management services industry for 25 years. As a brokerage director with the San Francisco Bay Area Agency, a general agency of Massachusetts Mutual Life Insurance Company, in Walnut Creek, Calif., he works primarily with the brokerage community in the areas of life, disability and long-term care insurance.