According to a new study by the Center for Retirement Research at Boston College, more than a third of people who have bought long-term care insurance (LTCI) will let their policies lapse at some point, forfeiting all benefits.
This study is a must-read for advisors who are active in the LTCI market. While it is comprehensive in scope, one issue it does not address is whether LTCI policyholders have the benefit of professional advice in their lapse-related decisions. Reading it, you will see that:
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Decisions to lapse LTCI often are made for emotional reasons or under pressure – i.e., feelings that premiums are not affordable or sustainable.
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For some people, lapsing LTCI may be a viable option that increases financial security and ability to bequeath assets after death.
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Lapses are common among people who are cognitively impaired, "perhaps reflecting poor financial decision-making."
In some cases, LTCI was initially purchased 10-20 ago, and the initial coverage decision doesn't reflect current realities of the following:
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rising premium costs
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the policyholder's financial situation and health care prospects
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advancements in long-term care facilities
For millions of seniors, independent and assisted living facilities have emerged as more attractive options to nursing homes. In these facilities, it's often possible to augment services by hiring home health care workers to perform activities of daily living, on-site.
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Some assisted living facilities also offer advanced treatment services such as memory care. However, many older LTCI policies do not cover independent or assisted living. For an informative take on this topic, see A Place for Mom.
A professional LTCI lapse analysis also can cover issues such as: 1) the current ability and willingness of a spouse, child or grandchild to supplement a senior's care; 2) the policyholder's willingness to spend down assets to qualify for Medicaid long-term care assistance; and 3) whether the LTCI policy qualifies for a state partnership program. (Partnership programs generally allow LTCI policyholders to offset a dollar of Medicaid spend-down for each dollar of LTCI coverage.)
In short, if you have the skills to evaluate whether clients should purchase LTCI in their 50s and 60s, perhaps you also are the best person to help them evaluate whether it makes sense to continue paying rising premiums in their 70s or 80s.
They and their children will greatly appreciate your involvement in an LTCI lapse review, and this service also can be a bridge to next-generation clients.
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