Gotta stay? Gotta pay!

Not so many years ago, Randi Grant, CPA, PFS, CFP, thought it would be prudent to recommend a relatively new kind of insurance to many of her clients.The theory behind long-term care insurance made sense: Secure protection from the potentially enormous cost of receiving nursing or rehabilitative care in a facility or at home.Today, it's no longer a theoretical proposition."I'm beginning to see some of these people go on to claim the 'God forbid' events are happening. It's reinforcing the things we have been telling people all these years," said Grant, director of taxation and personal financial planning for the Fort Lauderdale, Fla.-based CPA firm of Berkowitz, Dick, Pollack & Brant.Still, LTCI isn't a form of insurance that most clients are clamoring to purchase, as many are in denial about their prospects for physical deterioration -- plus, the coverage can be expensive.But CPAs may have a new reason to talk to them about long-term care.Billboards erected by plaintiffs' attorneys have been sprouting up in California (and perhaps elsewhere) with warnings like: "If your parents have spent all their assets on long-term care, call us," according to Chip Anderson, CFP, a financial planner in the CPA firm of Schad, Lindstrand & Schuth in Glencoe, Minn. "Basically," he said, "they're going after financial advisors" in hopes of persuading a court that an advisor's failure to recommend LTCI is the basis for a professional liability claim.Indeed, Anderson said that he's been advised to require clients who decline to act on a recommendation to consider buying LTCI to sign a disclaimer acknowledging their decision.LTCI SALES ON AN UPTICKSo far, however, these forces have not led to a surge in LTCI sales, but carriers report that the long flat market for the product is beginning to perk up. "Sales have been flat industry-wide over the last four to five years, but we're beginning to see an uptick," said Doug Rodgers, the LTCI channel head for MetLife Investors.The shaky economy perhaps has restrained some individuals from buying policies recently, but Rodgers believes that the "cumulative effect of all the education we've done" is beginning to pay off. "Accountants are starting to talk about it more," he said, adding, "It's a big market, and we're just scratching the surface."But aggregate sales numbers may be of less interest than what an individual advisor can, or should, do to introduce the coverage to clients for whom it is appropriate. Anderson, for example, has found lots of clients who have decided to purchase the coverage "because I have more of a passion for it due to a personal experience" within his family that dramatized the value of having LTCI protection.Increasingly, clients who are willing to buy the coverage are doing so in the context of a retirement planning exercise. "You don't have a retirement plan if you haven't done your long-term care plan," said David W. Simbro, vice president and executive officer of Northwestern Mutual's Disability Income and Long-Term Care Departments.Added Kyle Rothery, a vice president with Genworth Financial who is responsible for distribution of the company's LTCI products, "Every client should be asked these two questions: 'What is your written plan for [long-term] care?' and, 'How do you intend to pay if you have an extended need?' If they say, 'I'm going to liquidate assets,' then you say, 'We need to talk, because there are a whole lot of better solutions.'"CHANGING DEMOGRAPHICSYears ago, typical LTCI buyers were at the threshold of retirement, or even well into retirement, when the prospect of a nursing home sojourn was easy to visualize. Today, the average issue age has dropped to the mid-50s.When's the right time to raise the prospect of LTCI coverage with clients? "At 50, we are actively pursuing a conversation," Anderson said. "If they're under 50, I say they should start thinking about it."And all clients of Ray Weber, CPA, a Chicago-area advisor affiliated with Genworth Financial Securities, are confronted by the sign on his desk requesting that they, "Ask me about long-term care coverage."But Weber doesn't become too aggressive in pursing that dialogue before clients turn 50. He also generally won't raise the topic for clients with assets below $125,000, since, "Most of the assets will be exempt for Medicaid purposes." On the upper end, clients with over $10 million in assets "may want to self-fund this need."That, in theory, leaves the vast majority of clients in the sweet spot for LTCI. Although it's instinctive for CPAs to begin assessing a client's suitability for LTCI using financial criteria, that may not always be the place to begin. "I look at insurability, not the economics," said Grant."We've had a number of cases declined that really surprised us," added Anderson.In other words, picking the perfect time to buy coverage from a number-crunching perspective may be beside the point if a client flunks the physical.Also, often the biggest motivator to buy coverage from the client's perspective is a recent personal experience with a family member. "If they've gone through that pain, they're more likely to get it," said Anderson.But where that motivation is lacking, advisors have to help clients grasp the potential need. Weber tries appealing to clients' altruism. "I will remind them, they are not really doing this for themselves, but for their potential caregivers" -- i.e., family who would be burdened if the financial resources are lacking to retain professional support.Indeed, because of the fact that, absent adequate financial resources, care-giving responsibilities generally fall to a healthier spouse, "It's important to involve the client's family" and spouse in the decision to buy LTCI, according to Meridee Maynard, CPA and senior vice president of life products for Northwestern Mutual."Almost always it's the man who thinks he [will have no need] and the wife who says, 'Honey, I love you but I'm not going to care for you. We are buying this insurance,'" added Genworth's Rothery.AFTER-CARE CONCERNSEven where financial resources may, objectively, be sufficient to cover nursing care for a loved one, family members are sometimes agonizing over that decision. But with LTCI coverage in place, noted Grant, "It's a 'given' that if the insurance is there, there's no decision to make.""It also affects many other quality-of-care elements. For example, whether you can get into a skilled nursing facility after leaving a hospital may depend on whether or not you have LTCI," explained Grant. "The top facilities won't let you in unless they know that when they release you, you're goingto environment where there is going to be care for you at home." That is, they don't want to be "stuck" with patients whose resources may be exhausted and require indigent care, even if that fear is exaggerated.Exaggerated fears on the part of prospective buyers of LTCI are also often an issue with respect to the cost, according to Anderson. "They think it's more than it actually is; they're being misled and believe they're better off playing the odds," he said.Of course, LTCI can be expensive, but it's all a function of the level of coverage purchased. To avoid sticker shock, Anderson prepares a quote for a very basic policy before even asking clients whether they're interested. When he introduces the topic, he can show clients a premium that won't alarm them.He said that he'll get a quote for a bare-bones, inflation-adjusted $100-a-day benefit, two-year maximum coverage plan in order to get the conversation started.Bill Morrison, a CPA affiliated with Genworth Securities, takes a similar tack. "Some people may only be able to afford a policy that includes $50 a day, so we work with what that client can afford. It's important that they have some coverage, rather than none."Carriers, meanwhile, are trying to lower traditional sales barriers through product design innovation. The most significant recent trend in LTCI products involves increasing flexibility in the level of coverage that can be maintained. "It's no longer a 'one and done' product," said Jesse Slome, executive director of the American Association for Long-Term Insurance.Flexible insurance products have sought to address either the sticker shock problem or the persistency challenge."The mistake that people make," said Jim Ryan, president of Lenox Long Term Care LLC in New York, "is they take out a policy that they cannot afford to pay several years later due to changing financial circumstances. They then drop the coverage when the financial crunch hits, but later, when they're ready to resume coverage, they may be uninsurable due to intervening health issues."SOME POPULAR OPTIONSA pioneer with the so-called "life stage" LTCI contract was Allianz Life. The company's "Generation Protector II" coverage, for example, basically allows policyholders to boost coverage every five years without underwriting.John Hancock, another big player in the market, gives its LTCI policyholders the opportunity to increase or decrease coverage annually, although increases in coverage are subject to underwriting, and the incremental coverage amounts are priced at the policyholder's age when coverage is added.Similarly, a guaranteed purchase option in some of MetLife's LTCI products allows policyholders to buy up to double the original total benefit amount every three years, up to age 65, with no additional underwriting. But policyholders must occasionally exercise the option to increase coverage, or forfeit the opportunity.Another area of product innovation involves life insurance policies with "living benefit" riders, which allow policyholders to take an advance on death benefits to finance long-term care needs.For example, a "Total Living Coverage" policy from Genworth is essentially a single-premium universal life policy that "basically allows someone to move dollars that may have been sitting in a CD or money market account, and 'single-premium' them into this vehicle that gives them a great deal of control" over benefit allocation, said Rothery.Morrison recently led a 68-year-old widow to a similar policy. "She did not want her children to have the burden of taking care of her or worrying," he recalls. Because the policy wasn't "use-it-or-lose-it" -- that is, her heirs would still receive a death benefit even if she never spent a day in a nursing home or employed a home health aide -- she felt comfortable making the investment.Another potentially useful policy option, "shared care," is available where both husband and wife are still in the picture. When both spouses buy policies, these provisions essentially allow a surviving spouse to tap any unused benefits of their deceased spouse's policy.Policy bells and whistles aside, accountants still have to help clients sort through the fundamental variables such as coverage levels, elimination periods, inflation protection features, lifetime or fixed-duration premium schedules, and so on.A PARTNER TO CPASKnowing which features to recommend, and which insurance carriers are the best bets for actually offering the coverage, involves climbing a steep learning curve for many accountants. For that reason, some may welcome the idea of partnering with an LTCI specialist."Spreadsheeting this is almost impossible to do, because you have four or five variables that are part of every policy, and there are tons of variables when it comes to pricing," said Ryan. "It's easy for someone like me to say, 'Here is the best carrier for you,' because I do it all day long."However one arrives at the best LTCI alternatives to place before clients, there are no guarantees that they will move forward.Anderson said he can accept a "No" from a client, so long as he is persuaded that the client has "really addressed the issue, and made a decision, and not merely buried his head in the sand."