With long-term care coverage so costly, what do the pros do?

20150622_inq_invest22-a
Sen. Elizabeth Warren (D., Mass.) is investigating the tactics used by agents to sell long-term care policies.

Only a dozen or so insurers still sell policies covering it, but one thing hasn't changed: Long-term care is still extraordinarily expensive.

The median outlay for a private room in a nursing home was $240 a day ($87,600 a year) in 2014, more than twice the average household income of seniors. And consumers are reluctant to buy the insurance, according to a 2015 study by Wharton School professors Olivia Mitchell and Daniel Gottlieb.

"People hate buying insurance, thinking they could die the next day," Mitchell said. "They feel they won't get value for their money."

So we polled the professionals: What kind of long-term care insurance (if any) do financial advisers buy for themselves?

Eric Faddis, a certified financial planner with Chestnut Investment Advisors in Erdenheim, bought a policy in 1999 from insurer CNA. His annual premiums rose 11.8 percent in 2013 and 2014 after more than a decade of being without increases, he says.

If Faddis had a do-over, would he buy long-term care coverage?

"If I were younger, in my 40s or 50s, yes. But I wouldn't buy it at my age now," says Faddis, 75. "It was simple when I bought it, but it's gotten a lot more complicated."

He refers his investment clients to the Montgomery County Estate Planning Council to learn about long-term care.

Costs range all over the place, notes Jesse Slome, director of the American Association for Long-Term Care Insurance (AALTCI.org). A healthy 55-year-old man can expect to pay $1,060 per year for $164,000 of potential benefits, compared with $925 last year. A 55-year-old single woman averages $1,390, up from $1,225 per year in 2014.

"It's a complicated product and almost impossible to compare on your own," Slome says.

Insurers do not sell long-term care policies directly to consumers.

"They will merely direct your inquiry to an agent that favors their particular company," Slome acknowledges.

William R. Borton, an independent broker in Marlton, says long-term care insurance is appropriate only for people who can afford it. Those with less than $200,000 in assets shouldn't bother.

"If that's your situation, don't buy insurance," Borton advises. "Hire an elder-law attorney and manage the Medicaid system."

He bought a "hybrid" policy for himself and his wife.

"I own life insurance that pays a death benefit," says Borton, founder of W.R. Borton & Associates. ". . . It's universal life insurance, but if I meet the definition for chronic illness, that is doctor-certified, then I start getting a death benefit paid out while I'm still alive. It's more and more popular as people are less inclined to buy traditional [long-term care] policies."

Sounds like, but isn't. Some policies sound like long-term care coverage but are actually annuities in drag.

Annuity salespeople earn commissions of 12 percent to 15 percent on each policy they sell. That's what prompted Sen. Elizabeth Warren (D., Mass.) to start investigating high-pressure sales tactics.

"Annuity agents that are more interested in earning perks than in acting in their clients' best interest can place Americans' savings and retirement security at risk," the senator said earlier this year.

Warren asked annuity providers for information about broker incentives such as diamond rings and trips to Aruba, as well as their policies for disclosing those potential conflicts of interest.

She sent letters to 15 companies with the highest 2014 U.S. individual annuity sales: Jackson National Life; AIG Cos.; Lincoln Financial Group; Allianz Life; TIAA-CREF; New York Life; Prudential Annuities; Transamerica; AXA USA; MetLife; Nationwide; Pacific Life; Forethought Annuity; RiverSource Life Insurance; and Security Benefit Life.

Buyer beware. Don't confuse annuities that have "nursing-home doublers" and "triplers" with long-term care policies. Avoid them. They are sales and marketing gimmicks that don't offer any real protection.

Such annuities offer provisions that, after a certain number of years if you become chronically ill, double the payout should you be confined to a nursing home.

But typically, the circumstances under which one of these annuities pays for long-term care are so stringent, it is unlikely you will get the full payout.

"This is not a substitute for traditional long-term care insurance," Borton says. "Annuity companies come up with these bells and whistles, but through actuarial science, they don't lose money."

Instead, consumers do.


earvedlund@phillynews.com

215-854-2808 @erinarvedlund