Laying the Financial Groundwork for Healthcare Needs During a Pandemic

The American College of Financial Services
June 29, 2020

As the COVID-19 pandemic continues to spread anxiety among people across the country, many advisors and their clients are trying to plan for an uncertain future. For some, especially those at or nearing retirement planning age, the old rules of financial planning may not apply anymore, and the resources they’ve spent years saving up to maintain their current lifestyle may now suddenly be in jeopardy. But there are existing products and strategies in life insurance underwriting and other fields that could act as partial solutions to the problem.

In an April 16, 2020 webcast from The American College of Financial Services on public health and finance, adjunct professor of wealth management David Blanchett raised the idea of using mortality credits in the underwriting process as opposed to equity risk premiums in retirement planning, as these credits are increasingly viable, along with annuities, for people who think they could outlive their savings. But along with this, he also questioned what the future might look like for advisors with clients who have complicated medical histories, especially in situations where they need long-term care due to COVID-19.

“I'm going to be very painfully blunt here, but the fact is we're going to lose a significant number of our older people,” said Dr. Carolyn McClanahan, a fellow panelist and expert on medical history and its relation to retirement planning. “That's going to reduce overall long-term care costs. Will it affect pricing of long-term care products going forward? I don't think so, because this is to me a one-time blip on the radar. It’s the same with life insurance policies. COVID-19 is just like any other infectious disease that you could catch, and once we get through this, the insurers will have guidelines and understand how to mitigate those risks. In fact, I’ve seen some companies offering free life insurance underwriting for all healthcare professionals working with coronavirus patients, just as a good thing to do.”

WMCP® program director Michael Finke concurred, saying leveraging life insurance companies and their products as a measure of retirement income protection during the COVID-19 pandemic is safer than other solutions.

“For life insurance companies, the unexpected death of someone in their 80s is not going to affect their bottom line as much as the 1918 flu pandemic, when so many people in their 30s died,” he said. “They were paying a lot less for coverage and life insurance companies were not expecting that high rate of mortality among that group with no health history. It will be interesting though to see ultimately where rates of mortality end up for older Americans and the impact that that actually might have on insurance rates and products.”

McClanahan stressed that while life insurance underwriting can be useful, it’s not a universal solution.

“Every now and then, especially with people living longer and working longer, you do need permanent products with long-term care insurance and disability insurance in retirement planning,” she said. “I’m not a fan of the traditional life insurance policies. To me, the insurers cannot predict the future of what long-term care guidelines are going to look like, and I do think we are going to see a change in how long-term care is delivered because if you put a bunch of older people who have decreased immune systems and problematic health history together, you’re putting them all at risk.”

McClanahan also cautioned advisors using so-called “hybrid" life insurance policies for their clients to try to guard against changing retirement planning landscapes and difficult health history.

“From a financial standpoint, they're not great,” she said. “They're like a savings account: if you happen to use them for long-term care in the short run, they're going to be a really good deal. If you're going to use it for long-term care in the long run, they might not be as helpful. I feel a lot more secure with those type of life insurance policies than I actually do with traditional long-term care, though. Many of them are indemnity type. Once you meet the two ADLs or have cognitive decline, you get that monthly benefit without having to turn in all the medical and life insurance application paperwork and still possibly getting denied care.”

 

Giving You the Confidence Knowledge Provides

 

At The American College of Financial Services, we’re working to bring you the latest information from the foremost experts in the field as we all face this once-in-a-generation crisis together. For more of this conversation life insurance policies, retirement income, and health history featuring Michael Finke, David Blanchett, and Carolyn McClanahan, watch the full webcast below from April 16, 2020.

 

 

In addition, you can download our free e-book, “Financial Planning During COVID-19,” for total access to all transcripts and on-demand webcast links.