Avoiding long-term care talk puts everyone at risk, consultant warns

(June 18, 2004) Financial planners who fail to discuss long-term care insurance are putting their clients and their practices at risk, according to Patty Randall, a national consultant on long-term care and author of The Care Years.

“When I realized that my financial planner had not taken care years into consideration with me, I fired him,” she said at the Canadian Institute of Financial Planners’ (CIFPs) national conference in Ottawa.. “I didn’t care how well he’d done for me up to that point. I thought he put me at major risk.”

She speaks from personal experience. Her life was turned upside down following a fall taken by her father, which plunged the family into the world of long-term care.

For the first time in history, most seniors will have parents to look after due to medical advances. By 2010, 60% of people over 50 will have surviving parents, and funding their day-to-day care poses a threat not only to the quality of the younger generation’s retirement, but possibly to the entire financial system.

“If I were in a credit union or the banking industry, I’d be shivering in my shoes, because when all those seniors hit the care years, they’re going to start pulling out assets really quickly,” she says. “When those assets are gone, they’re going to look to their children and then they’re going to start pulling out their assets.”

Randall quotes a study from the U.S. which found the average baby boomer will spend 17 years caring for children and 18 years caring for their parents.

“When they say ‘I won’t be a burden, I’ve got children’ you have to give them this kind of graphic illustration and ask them ‘What do you want for your child?'”

The breaking point for the medical system will come sooner than most people think, according to Randall. She pinpoints 2035 as the critical year, when baby boomers will be clustered around the 75-year age range.

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It is commonly held that people should now base their financial plan around the assumption they will reach the age of 90, just to be safe. But quality of life can begin to deteriorate at any time, with the need for additional care often starting between the ages of 70 and 75.

Based on these assumptions, the client could spend the last 25 years of their lives in retirement — with no new income — with 66% of that time spent in under some form of care.

Long-term care is not a supplementary product, it is a must-have product. The odds of a person needing to eventually make a claim for long-term care are far better than the odds for making a claim on their auto or home insurance.

Yet the problems facing advisors seeking to shore up this part of their clients’ financial plans are numerous, with most people refusing to accept that they are aging at all. There are many common responses advisors can expect to hear.

Clients may believe they will be looked after by the government, their spouse or their children, without realizing there is little government support and that costs borne by the family can be staggering.

Randall asks how many people want to change your parent’s diaper. Would they want their children to have to do the same for them?

Most women continue to think their husband will look after them.

“It flies in the face of all the data,” she says. “Fifty-nine per cent of those women are going to be single, based on divorce or death rates and 75% die as single women.”

To circumvent the divorce issue, Randall recommends both parties include long-term care insurance in a prenuptial agreement.

Randall recommends clients not only get long-term care insurance on their parents, but ensure their own life insurance will cover the premiums should they die before their parents. This policy could then be used to fund an long-term care insurance policy for the child, after the parent passes away.

Just as a will designates an executor, long-term care plans should designate a “care manager.” For instance, a client should name one of their children as to coordinate their future care, including such things as hiring an in-house caregiver.

Randall says it is a common mistake that people think long-term care insurance needs to cover nursing home costs only, because less than 10% of Canadians receiving care are in that setting. The rest are living at home.

It can be difficult to discuss elder care, given the distressing conditions long-term care insurance is designed to avoid, but Randall warns clients may feel their advisors are using fear to sell long-term care policies. Instead she says advisors need to express their concern while allaying fears, by asking their client if they know anybody who is receiving care. If they do, chances are the product will sell itself.

“None of us can go back and make a brand-new start, but every one of us can start today and make a brand-new ending for our parents and our children,” Randall says.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(06/18/04)