Retirement plan advisers may not consider long-term care insurance to be a likely voluntary benefit that their plan sponsor clients might consider, but some sponsors are offering it, says Larry Nisenson, chief commercial officer for Genworth’s U.S. life insurance division.
“Every year, we have more companies asking us for a quote,” he says, and with the population ageing, he expects that to continue to increase. Among companies offering long-term care insurance to their workers, it typically takes a few years after first introducing it for workers to purchase the insurance, Nisenson says. “There is an awareness curve in long-term care insurance that doesn’t exist in other products, like auto, home or life insurance,” he says.
Advisers who are educated about long-term care insurance can increase awareness for retirement plan sponsors and participants.
“Less than 10% of those who would likely need long-term care insurance own a policy,” Nisenson says.
And the need is great, says Keith Moeller, a wealth management adviser who specializes in long-term planning and insurance at Northwestern Mutual. “Seven out of 10 people over the age of 60 will face a long-term care event,” he says.
What typically prompts a person to decide to inquire about or purchase long-term care insurance is having experienced the need for such care in their own family, Moeller says. Or, they are facing a medical issue of their own.
Even if they have encountered either scenario, people are not likely to purchase long-term care insurance without having a conversation with their adviser, Moeller says. The topic comes up when he asks clients about their various financial objectives, such as planning for retirement, planning for a legacy and addressing estate taxes. After asking clients how they might address the potential economic impact on their family should they become incapacitated and where the money to cover that is going to come from, Moeller then discusses long-term care insurance with clients.
“It’s really about prioritizing their goals,” he says, adding that 40% to 50% of Northwestern Mutual clients planning for retirement decide to take out a long-term care policy or add an accelerated benefit to their life insurance. The other half plan to cover long-term care expenses out of their retirement savings, Moeller says.
In total, “100% of our clients are planning to manage the cost of long-term care to minimize the impact on their families,” he says. “This is such a critical issue and has such an impact on the loved ones around you” that clients realize they really do need to have a plan.
Genworth, which sells long-term care insurance both to individuals and through the workplace market, and “is one of the leading providers of group long-term care insurance,” Niesenson says, has found that the average age at which people buy this insurance through their workplace is 53 or 54. In the individual market, it is 58 or 59.
It is important for someone considering this insurance to know that the likelihood of an insurance company underwriting a policy decreases as people age, he says. Only 48% of those in their 50s qualify for long-term care insurance, and for those in their 60s, it drops to 38%, Nisenson says. Genworth underwrites policies for people up to the age of 70, although other insurers extend that to age 75, he adds.
Long-term care insurance covers home care, adult day care, assisted living and full-time nursing home care, Moeller says. Most people want to receive care at home.
As to how much coverage an individual should purchase, the average age that a person needs long-term care is 80, and the average length of time they need such care is six years, Moeller says. Knowing that the cost of this care increases by 5% a year, Northwestern Mutual helps a person project what this care is likely to cost between the age they retire and age 80. The insurer then helps individuals figure out how much savings and Social Security or other benefits they will receive and how much of the assets need to be preserved for their spouse or partner to figure out how much insurance they can afford, Moeller says.
With that information in hand, Northwestern Mutual writes policies that pay anywhere from $1,500 to $12,000 a month for long-term care, Moeller says. The policies are always designed “in the context of what is right for a person’s particular situation, and what fits their budget,” he says.
Genworth also offers individuals an inflation rider, and in the group plans, it is available at the plan level, Nisenson says.
As for what happens when a person purchases group long-term care insurance through their employer and then leaves the company, Niesenson says, by law, “the long-term care policy must be portable.”
Long-term care insurance has evolved since when it was first offered 50 years ago, Nisenson says. It started out covering only nursing home care. “As the population ages and people’s lifestyle changes, policies will continue to evolve to allow more flexibility,” he predicts.