The proper coverage

It’s one of those questions that keeps clients up at night: if my partner gets seriously ill, how can I pay the extra health care costs? Most people have the luxury of time to address this issue, but seniors don’t. They are living longer lives—many with chronic health conditions—that make insurance a wise investment in their future.

Older clients looking for insurance will most likely need long-term care (LTC) or critical illness insurance, which provides a regular payment that can be used toward the cost of in-home care or an assisted-living residence following a catastrophic health event.

“People are living longer and, as a result, are having more health issues,” says Winnipeg-based Heather Clarke, vice-president, insurance services, Investors Group. “This clearly points to the need for LTC and critical illness insurance for clients.”

Ideally, discussions about these insurance options should begin when clients reach their 50s, says Kathy Preston, vice-president of life and health business at RBC Insurance in Toronto. Purchasing LTC or critical illness insurance at an earlier age can make a significant difference in both the cost of the product and the thoroughness of the application process.

But not everyone plans ahead. In cases where new clients are seniors or clients have not purchased insurance early, it can be a challenge to get them insured. An advisor with few strategies on hand stands a better chance of getting adequate coverage for their client.

Choices and challenges When determining a senior’s insurance needs, an advisor should follow the same process he or she does with younger clients. “Look at all of their needs, the types of insurance they already have and what assets they have,” says Ian Jack, Toronto-based product manager for living benefits with RBC Insurance. That will determine if the client has to worry about asset erosion. Jack says clients with about a half a million to $2 million dollars should certainly consider insurance, particularly LTC if there are health concerns.

For clients with asset erosion worries, the discussion should turn to what kind of future health concerns they may face. If it’s a one-time catastrophic event, like a heart attack or stroke, critical illness insurance might be a better fit. For those concerned with general aging issues or mental health problems (like dementia), LTC is the way to go.

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The biggest challenge older clients will face when trying to get insurance is the cost. Prices for long-term care insurance or critical illness insurance can increase significantly after the age of 60, since people are more likely to need assistance or suffer from a health event as they get age. Unfortunately, the only way to avoid this is to purchase these types of products earlier.

Knowing the process Due to the higher risk of health problems, the underwriting process can be longer and more comprehensive— particularly for LTC insurance— and advisors should take care to explain this to clients.

“It’s really about managing expectations. It’s important for the advisors to have enough familiarity with the product to do a general field assessment as they talk with their clients—that way the advisor gets a sense of if the client will be a good candidate for the product,” says David Baker, assistant vice-president of health products, Sun Life Financial, based in Ottawa.

Clarke also suggests that advisors become more involved with the underwriting process for senior clients. “Become educated on the process and what questions will be asked and what tests will be done. Provide clients with tips— like leading as healthy a life as possible before the testing period— to help them get through the process more confidently,” she says.

Some insurance products involve longer applications that require a full health history, which the advisor and client can fill out together, says Clarke. She suggests that advisors find out if the process includes a phone call for additional health history, since some seniors may have trouble with such a call.

Finally, advisors can add a cover letter to the application form explaining why the client is applying for insurance and address any health issues in the client’s history. “Sometimes an advisor can head off questions from the underwriters in the cover letter and this can save time and possibly increase chances of getting insured,” she says.

When it comes to LTC—which has only been on the market for about 11 years—many advisors don’t know enough about the product offerings, or cannot confidently guide a client through the application process. Baker says many insurance companies have dedicated specialists on hand to answer advisor questions about certain products and provide application-related.

“This service can be meaningful for an advisor who has had their applications denied or changed,” he says. With regards to compensation, these specialists will share a commission on any products sold.

Clarke stresses that advisors shouldn’t give up if a client’s application is rejected the first time. “Insurability for these products varies from company from company. Being declined or low-rated with one doesn’t mean you won’t get insured with another company,” she says.

Alternative Solutions For seniors who can’t afford LTC or critical illness insurance, advisors can try other strategies, says Jillian MacPherson, an associate portfolio manager, private client services, at TD Waterhouse. “Clients can purchase annuities as a way to get a minimum guarantee of money to cover estate costs or, in the cases of joint annuities between spouses, provide money for the survivor to live on,” she says. The only drawback is that the client cannot access the funds until the death occurs.

The marketplace is responding to the aging population, notes Clarke. “It’s recognizing that clients’ needs change as they age, so there are products that change as you age.”

Stemming from that recognition: disability products that turn into LTC coverage once a client turns 65, a switch that acknowledges that there is not much need for disability insurance once a client retires. Baker says that Sun Life offers a similar option for its critical illness products. “We also allow clients to do a partial conversion of their critical illness policy into a LTC product to provide a guaranteed issue,” he says.

There’s also more support to advisors searching for the right products. So while it might be a challenge to cover older clients, advisors who take a little extra time and get help when they need it will be able to find a solution.

Leigh Doyle is a Toronto-based freelance journalist.

(11/16/10)