Often when people go through a divorce, their emotions are tied up. The questions on their mind are “how does this marriage end?” and “what do I get financially?” When they do think about health insurance, they usually don't consider long-term care insurance (LTCi). Why is it so important for recently divorced or currently divorcing couples to think about long term care planning? Two reasons:
1. When spouses split, they typically lose their primary health care advocate, whether that translates to someone who provides hands-on care or the person who arranges for professional care.
2. Both parties will have a smaller pool of assets to fund potential long-term care expenses. For the higher-earning party, a long-term care event may impact the ability to meet spousal maintenance and child support commitments. For the lower-wage earner, it can create greater financial hardships, which can limit their care options.
Either way, the lack of long-term care planning may place a massive emotional and financial burden on the couple’s children. Younger kids may find themselves deprived of their caregiver and/or their financial support. Adult children might be asked to share in the expense of care for a parent, whether they’re ready or not. Regardless of the situation, most couples would agree that minimizing the divorce’s impact on the kids should take priority, which is one of several reasons why LTCi should be part of the divorce conversation.
Building LTCi Into Divorce Agreements
The objective of a divorce agreement is to achieve an equitable division of assets and property. The higher wage earner is expected to make concessions to provide for the lower wage earner. Part of this agreement might include purchasing an LTCi policy for one’s soon to be ex-spouse while dividing assets. Asset-based LTCi plans are helpful tools, thanks to their guaranteed rates and flexible payment options, which allow premiums to be paid off in a set time period.
For example, the financial advisor was asked to suggest an LTCi policy for a 55-year-old woman as part of her divorce agreement. Both she and her husband were eager to separate their financial affairs. For this reason, a traditional pay-as-you-go LTCi policy didn’t hold much appeal to either party.
The client’s financial advisor recommended a life insurance policy with an LTCi rider and a 10-payment premium plan. Premiums would be paid in full after 10 years, at which time the ex-husband’s responsibility would be fulfilled. Both parties signed off on the arrangement. When ample assets exist, a single payment plan - in which premiums are paid in one lump sum - can be extremely useful in the distribution of assets.
Spousal Discounts During Divorce? Yes!
There have been situations where both members of an amiably divorcing couple have decided to apply jointly for long-term care insurance. Interestingly, a couple going through divorce proceedings can typically take advantage of spousal discounts offered under traditional LTCi policies. These discounts typically range from 10 to 30 percent and, in our experience, remain in place even after the divorce is finalized. Each individual receives their own policy anyway, so coverage is not linked going forward.
Some asset-based life and LTCi policies also offer spousal discounts, which divorcing couples can take advantage of. However, while most carriers issue separate policies to each spouse, at least one carrier issues a joint policy with individual LTCi benefits.
Provided there is an insurable interest (say, the welfare of the children), this policy can remain in effect post-divorce. Although some ex-couples might find it expedient to share a joint policy, others might not be open to the idea.
LTCi, Divorce, and Women
Long term care planning is especially important for women, according to a number of statistical angles. Multiple studies have shown that a woman’s standard of living is likely to drop following a divorce, while a man’s standard of living is likely to increase. In addition, industry statistics indicate that women are more likely to require long-term care, as women typically live longer than men.
In addition, according to the American Association for Long Term Care Insurance, nearly two-thirds of Americans who have Alzheimer’s are women, with Alzheimer’s being the most expensive medical diagnosis for LTCi claims.
What About “Gray Divorces”?
The number of “gray divorces” - divorces occurring among people ages 50 years and older - has doubled in the past 20 years, according to a recent Bowling Green State University study. At the same time, health problems increase with age, as does the need for long-term care.
It used to be that most consumers purchased their policies in their 70s, but now, people are buying policies while in their 50s. According to the AALTCI, 2014 found 80 percent of new LTCi policies being purchased by people between the ages of 45 and 64. When clients in their 50s are getting divorced, this type of planning becomes even more essential.
Divorce is a difficult time for clients and their families at any stage of life. But it’s also a time when clients are re-evaluating and planning for the future. As their agent or advisor, one of the best ways you can serve your clients proactively is to make LTCi part of your conversations. A little education and planning go a long way. Just like you don't throw the baby out with the bathwater, you don't throw long term care planning out just because you're getting divorced.