Whether we like it or not, everyone is getting older and will need help at some point. Unless you interrupt the aging process by getting hit by a truck or jumping off a bridge, there's nothing surprising about the inevitability of growing old.
What is surprising is the magnitude of this trend. Most of us in financial services know at least one often-repeated number: 10,000. That's how many people will retire every day for the next 18 years. What we still do not know is the array of products, services and health care needs they will have.
According to a Morningstar study, 12 million Americans will need long- term care by 2020. Further, the Dept. of Health and Human Services projects that 302 out of every 1,000 men will need long-term care at the age of 65 (as long as five years of care in some instances). For women, that number jumps to 555.
In fact, this same study estimates that 70% of those over the age of 65 will need some outside health care service at some point in their lives.
And while we all know about increasing costs, it's especially bad for nursing homes. Today, the average household income in the U.S. is $51,404, but the average cost of one year in a private room at a nursing home is $83,950. And in a Genworth study, this cost will skyrocket to $358,505 in 30 years.
Thirty years may seem far away, but for clients in their 40s and 50s that's right in the middle of their retirement years.
All of this raises the question: Why, according to a 2010 Age Wave/Harris Study, have 91% of baby boomers never been asked about long-term care?
Two of the culprits are a lack of education on this product and a general sense of denial, says Eileen Dunn, geriatric care manager at Associates of Clifton Park, a leading insurance agency specializing in LTC distribution.
"Both clients and financial advisors [think] LTC is all about nursing home care or for when there is significant physical disabilities. There is an education gap about what LTC really involves, including things like home care, assisted living and even adult day care," she says. "The typical financial advisor is really not prepared. They have the financial perspective, but they don't have a good understanding or are uncomfortable with the health care system and don't know what they don't know."
Dunn says that far too many people, both FAs and the public, think LTC is just about end-of-life care. "So many people don't realize that by 2015 most cancers will be considered "chronic" illnesses and will need in-home care for many years. Or that Alzheimer's now accounts for the largest percentage of all LTC claims, but arthritis accounts for the most assisted living LTC claims."
While there are lots of statistics about LTC, there is little hard data on sales of policies specifically in the bank channel. "I think we're just seeing the tip of the iceberg when it comes to bank sales of LTC," says Leonard Berns, senior wealth transfer consultant at Associates of Clifton Park.
"Banks are doing a fair job with older clients, but are missing out on prospects in their 40s and 50s. They're also doing okay with higher-net-worth retirees helping them reposition and protect their assets," he adds.
Berns says that banks are slowly beginning to make LTC more of a core product, but "there are still many bank programs that are hesitant to add new vendor relationships, add to the existing compliance burden and require their sales teams to go through complex LTC training," he explains. "And so, while some banks are doing well, compared with other distribution channels, many are missing the boat."
A major hindrance to sales today is the perception that LTC is too expensive. "Compared to 10 or 15 years ago, premiums are higher, but the risk to middle- and upper-income clients of using all their savings for medical care is significant," says Berns.
And while there is the perception that LTC is very expensive, according to a recent survey by the American Association for Long Term Care Insurance, 53% of LTC buyers under age 61 and 47% between the ages of 61 and 75 only pay between $1,000 and $2,500 a year for coverage. Berns adds, "The question isn't can you afford LTC, but can you afford not to be covered?"
Loida Abraham is senior vice president and managing actuary for LTC at Genworth Life, the largest LTC provider in the U.S. with over 16% market share and over 1 million lives covered. "Banks have a great opportunity in LTC," she stated. "Given banks customer demographics, there is no better channel to reach people who are 65 and over."
She believes that what's missing for banks is commitment. "Banks need to make a one- to two-year commitment to do it right," she says. "They need to determine the type of selling system that's right for them. For some banks, it might be to educate and train their FAs or to designate LTC experts who really understand everything from the products, to underwriting criteria, to Obamacare. For other banks, partnering with an outside agency that is expert in LTC may be the right path."
Berns also believes partnering is the way to go for many banks. "Firms like AOCP [Associates of Clifton Park] are national in scope, know the products inside and out, know how to deliver training to FAs and agents, and are familiar with bank culture and its unique compliance and managerial reporting issues. This makes partnering a very smart choice," he says.
This issue is the "elephant in the room," says Marc Vosen, president of Key Bank Investment Services in Cleveland. "LTC should be a priority at banks. the best retirement plans developed by FAs can be devastated by health care costs," Vosen says. "The really wealthy don't need it, they've accumulated the assets to cover their health needs. But the mass affluent could see their retirement assets depleted for their care or the care of their spouse. They really need LTC, and they're banks' bread and butter."
Abraham agrees. "For consumers, there are four ways to pay for health care needs: Relying on your savings; Relying on your family which has its own difficulties and challenges; Relying on Medicare or other government programs and who knows where funding for these programs will be; and finally, an LTC policy. Or a combination of all four. Given the nature of their customer relationships, banks really do have a unique opportunity."
While banks need to do more training, this issue goes beyond just understanding features and benefits of a product, says Dunn. "It's also an understanding of the health care system with all its complexity and uncertainty. Banks may need an LTC specialist who has prior experience in the health care system or forming a relationship with an outside organization that has the expertise may make the most sense."
Vosen, whose bank uses the services of an outside agency, agrees. "Selling LTC requires a different discipline. For the most part, bank FAs are investment people. This is a very complicated area, and partnering can be a very smart decision."
Paul Werlin is president of Human Capital Resources Inc.
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