©2015 Lincoln National CorporationFor public use.LCN-1146943-031115

LONG-TERM CARE RISKSurvey results from advisors and consumers

Market Research andProducer Intelligence

October 2014

SURVEY DATA

Research conducted by Lincoln Financial Group and Hanover Research

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METHODOLOGY

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• Consumers are most concerned about having enough money to retire comfortably and potential threats to their retirement security such as taxes, inflation, healthcare/long-term care expenses, longevity, and job loss.

• Four in 10 consumers consult a financial professional, but many are not addressing the planning issues they believe are most important in discussions with their advisors.

• Addressing a broader range of planning topics drives satisfaction with their advisors.– In particular those receiving services like wealth protection planning, estate planning, tax

planning, and long-term care planning are more satisfied.

• Advisors recognize this need, but many still equate protecting wealth with managing investment risk rather than taking a comprehensive approach to planning.

KEY HIGHLIGHTS: WEALTH PROTECTION

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• Healthcare and long-term care costs are the most difficult risks to manage in a client’s retirement income plan.

• Advisors face an uphill battle when it comes to convincing their clients to protect against these risks.– Consumers are skeptical—few believe that they are likely to need long-term care

and they significantly underestimate the costs associated with care.– Consumers expect to rely on a combination of savings, healthcare insurance and

government entitlements like Medicare to cover these expenses. – But they are worried—fewer than 1 in 4 express confidence that they will have the

financial resources necessary to pay for long-term care services.– While consumers recognize the importance of insuring against long-term care risks,

available solutions are considered too expensive by most consumers.

• Advisors estimate that clients who experience a long-term care event and do not have protection in place could draw down their retirement savings at rates 2‒3 times faster than planned.

KEY HIGHLIGHTS: LONG-TERM CARE PLANNING

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• Advisors recognize the risk, but few are discussing these risks with their clients.– Only 1 in 5 consumers have discussed long-term care planning with a financial

professional, and only 17% of consumers own a long-term care insurance policy.– Consumers are going elsewhere for information and protection—most report getting

coverage through an employer or on their own (online or direct from a provider).

• Most advisors express dissatisfaction or ambivalence with available solutions citing cost and increasing premiums as major barriers they face in putting solutions in place for their clients.– On average, most advisors place fewer than five LTC policies per year.– Nearly 7 in 10 advisors indicate that clients typically take two or more months to

make a decision about purchasing long-term care protection. This highlights the challenge of fitting lengthy insurance sales into transactional advisory business models.

KEY HIGHLIGHTS: LONG-TERM CARE PLANNING (CONT.)

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• Nine out of 10 advisors expect demand for long-term care protection to increase over the next 5 years.– However, advisors need more flexible options to accommodate client needs.– Currently, most view traditional long-term care insurance as the primary solution to

meet this need.

• Familiarity with and sales of alternative long-term care protection solutions like hybrid/combo policies, life insurance or annuities with long-term care riders trail behind traditional long-term care insurance.– Advisors want solutions that provide affordable premium options, inflation

protection, and guaranteed benefits.

KEY HIGHLIGHTS: LONG-TERM CARE PLANNING (CONT.)

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• Consumers are most concerned about having enough money to retire comfortably.

• Potential risks to retirement security also cause anxiety for many. These risks include job loss, taxes, inflation, healthcare, long-term care and longevity (outliving their money).

TOP FINANCIAL CONCERNS

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Risks to retirement

security

CQ1: Thinking about your personal financial situation, please indicate your level of concern with each of the following. Please use the following scale where 1 = not at all concerned and 5 = very concernedBase: 1,186; all consumers

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• Advisors are focused on supporting clients to address most of their top concerns.

• But there are other concerns around protecting against the effects of inflation, the loss of a loved one or the loss of a steady income stream that they may not be addressing with their advisors.

CONSUMERS RELY ON ADVISORS TO ACHIEVE RETIREMENT GOALS AND MITIGATE RISKS

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Core advisory services Specialized issues that may be underserved by advisors

Consumers managing on their own

AQ1: What are the top concerns that your clients seek advice on as they prepare for retirement? (multiple response). Base = 373; all advisors.CQ1: Thinking about your personal financial situation, please indicate your level of concern with each of the following. Please use the following scale where 1 = not at all concerned and 5 = very concerned. Base = 1,186; all consumers.

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• But many are not addressing the planning issues they value most with their financial advisor.

CONSUMERS WANT MORE COMPREHENSIVE PLANNING…

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Consumers believe planning is important but few are discussing these topics with their advisor.

CQ3: In your opinion, how important are the following financial planning activities to you? (5-pt scale, 1 = not at all important and 5 = extremely Important).CQ6: Which of the following topics have you discussed with your financial advisor or the financial professional you consult most often? Please select all that apply.Base = 477; use an FA.

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MORE COMPREHENSIVE PLANNING = MORE SATISFIED CLIENTS

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• Consumers who address a broader range of topics with their advisors express much higher levels of satisfaction.

CQ7: Overall, how satisfied are you with the financial professional that you work with most often? Base = 694; met with an advisor.CQ6: Which of the following topics have you discussed with your financial advisor or the financial professional you consult most often? (multiple response).Base = 694; met with an advisor.

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• Wealth protection planning and related services including estate, tax and long-term care planning help drive client satisfaction.

WEALTH PROTECTION PLANNING DRIVES SATISFACTION

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Pearson correlation

Significantly correlated with satisfaction

CQ7: Overall, how satisfied are you with the financial professional that you work with most often?CQ6: Which of the following topics have you discussed with your financial advisor or the financial professional you consult most often? (multiple response).Base = 694; met with an advisor.

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• Advisors view “protecting clients’ wealth” as a key area of their advisory practice.

• However, many advisors focus on managing investment risks (e.g. asset allocation, etc.) and don’t take a comprehensive approach to wealth protection planning (e.g. health/long-term care, taxes, estate planning, etc.)

ADVISORS MOVING TOWARD MORE COMPREHENSIVE PLANNING

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3.99

4.48

4.52

4.53

4.06

4.11

3.90

Mean (5-pt scale)

AQ3: Please indicate how important the following planning activities are in your practice.AQ5: Which of the following services do you currently offer to your clients? (multiple response).Base = 373; all advisors.

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HEALTH AND LONG-TERM CARE RISK ARE CRITICAL CHALLENGES FOR ADVISORS

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AQ2: Which of the following risks are the most difficult to manage in a client’s retirement income plan? (multiple response).Base = 373; all advisors.

• Of all the investment risks advisors help clients manage, they find health and long-term expenses the most challenging.

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• Nearly 7 in 10 Americans require some form of long-term care service.

• While three-quarters of advisors recognize this risk, consumers are much less likely to believe that they will need long-term care service for themselves or a family member.

WHY? DESPITE THEIR CONCERNS, CONSUMERS ARE HARD TO CONVINCE

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Source: U.S. Department of Health and Human Services.

Avg. # years

needed

3 yrs

1 yr

<1 yr

1 yr

<1 yr

Perception gap that advisors need to overcome to effectively protect client against risk

AQ8: How would you rate an average client’s likelihood of needing long-term care in the future, on a scale of 1 to 5, where 1 is “not at all likely" and 5 is “extremely likely"?CQ14: How would you rate the likelihood of you personally needing long-term care in the future?CQ15: How would you rate the likelihood of a family member such as a parent or spouse needing long-term care in the future?A Base = 373; all advisors.C Base = 1,186; all consumers.

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(UNDER) ESTIMATING THE COST OF LONG-TERM CARE RISK

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• More than half of advisors tend to reasonably estimate the average annual cost of care in a nursing home.

However, at 43% there is a significant number of advisors who are underestimating the potential impact of long-term care costs and the risk to their client’s retirement nest egg.

• An even more significant gap exists among consumers—three out of four underestimate the cost of nursing home care, highlighting the importance of education and planning.

National average: $83,580 per year*

*Source: US Dept. of Health and Human Services, 2010.

73% of consumers and 43% of advisors underestimate the cost of nursing home care

AQ27/CQ20: Which of the following cost ranges do you believe most accurately reflects the average annual cost of a private room in a nursing home facility in the United States today?A Base = 373; all advisors.C Base = 1,186; all consumers.

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• Fewer than 1 in 4 consumers are confident that they will have the resources to pay for long-term care.

• Over half believe long-term care insurance is important.

CONSUMERS ARE NOT CONFIDENT WHEN IT COMES TO PAYING FOR LONG-TERM CARE EXPENSES AND BELIEVE PROTECTION IS IMPORTANT

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24%53%

CQ22: Overall, how confident are you that you will have the financial resources to pay for long-term care expenses should the need arise?CQ23; How would you rate the importance of long-term care insurance, on a scale of 1 to 5, where 1 is “not at all Important" and 5 is “extremely Important"?C Base = 1,186; all consumers.

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• Despite their awareness of the need for and cost of long-term care, fewer than half of advisors have discussed LTC planning with the majority of their clients.

• Fewer than 1 in 10 advisors have implemented a long-term care solution for the majority of their clients.

• Not surprisingly, fewer than 1 in 5 consumers report owning an insurance-based long-term care solution.

RAISING THE ISSUE OF LONG-TERM CARE PLANNING

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*LTC solution includes LTC insurance or life insurance with LTC or CI benefit.

AQ10: Overall, with what percentage of your current clients have you discussed long-term care planning?AQ11: Overall, what percentage of your clients currently have a long-term care protection solution in place?CQ8: Which of the following financial products do you currently own? (Select all that apply.)A Base = 373; all advisors.C Base = 1,186; all consumers.

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IMPACT OF A LONG-TERM CARE EVENT ON RETIREMENT INCOME

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• Nearly 70% of advisors estimate 4-5% to be the average portfolio withdrawal rate for a typical client.

• Two-thirds of advisors expect clients that experience an LTC event to draw down retirement income at rates more than 2x what they planned.

Nearly 1 in 5 advisors sees that percentage rising to 16-20% or more.

• For clients who have no long-term care protection, advisors anticipate the effect of an LTC event on client portfolios to be severe, necessitating a dramatic increase in drawdown percentage.

+65

AQ4: What is the average annual withdrawal percentage (%) for your typical client taking retirement income from their investment portfolio?AQ26: If a client does NOT have a long-term care solution in place and experiences a long-term care event, what do you estimate that the new average annual withdrawal percentage from their portfolio will be? Base = 373; all advisors.

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• Consumers believe their savings and government benefits will cover the cost of long-term care treatment and expenses, and resist the long-term care insurance strategies recommended by advisors.

LONG-TERM CARE FUNDING STRATEGIES – TOP OF MIND

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ADVISORSWhat are the primary resources or strategies that come to mind when you think of protecting your clients against the risk of long-term care expenses.

CONSUMERSIf you or a dependent family member were to become disabled or require long-term care, what available resources come to mind that would help pay for treatment and care expenses?

AQ14: What are the primary resources or strategies that come to mind when you think of protecting your clients against the risk of long-term care expenses? (open-ended).CQ17: If you or a dependent family member were to become disabled or require long-term care, what resources come to mind as available to you to cover treatment and care expenses? (open-ended).

A Base = 373; all advisorsC Base = 1,186; all consumers

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LONG-TERM CARE STRATEGIES (AIDED)

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• Most consumers expect to be able to use benefits like Medicare and health insurance that are not designed to meet long-term care needs.

Fewer than 1 in 5 consumers consider LTC or life insurance-based solutions.• Traditional long-term care insurance is the top resource considered by advisors.

CONSUMERS ADVISORS

CQ18: If you or a dependent family member were to require long-term care at some point in the future, what resources do you anticipate you would use to cover treatment and care expenses? (multiple response). Base = 1,186; all consumers.CQ19: Which resource do you anticipate would be your primary source for covering treatment and care expenses? Base = 944; more than 1 selected.AQ15: Which of the following resources or strategies have you and your clients considered when planning to cover the cost of long-term care expenses? (multiple response). Base = 373; all advisors.

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KEY BARRIERS TO CHOOSING A LONG-TERM CARE SOLUTION

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ADVISORSCONSUMERS

• The cost of the insurance and concern over increasing premiums are primary barriers to purchase cited by both consumers and advisors.

CQ33: Please indicate the extent to which you agree or disagree with the following statements. (5-pt scale, 1=do not agree at all and 5=completely agree.) AQ21: What are the primary barriers you experience in selling long-term care protection solutions to clients? (multiple response)C Base: 1,039; do not own LTC.A Base = 370; currently offer LTC.

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FUTURE OUTLOOK

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ADVISORSCONSUMERS

• 9 in 10 advisors expect client demand for long-term care protection to increase over the next 5 years.• However, consumers express much more uncertainty, with only a small fraction (3%) indicating that they

have definite plans to purchase.

AQ24: Overall, do you expect client demand for long-term care protection to increase, stay the same, decline over the next 5 years? Base = 372; all advisors. CQ32: How likely are you to purchase long-term care insurance in the future? Base = 1,039; do not own LTC.

22%

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ADVISORS NEED MORE OPTIONS TO PROTECT CLIENTS

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CQ27: Below are some reasons people mention for purchasing long-term care insurance. Please indicate the importance of each to your personal decision to purchase long-term care insurance coverage. Base=147; own LTC.AQ20. What do you believe are the most important features or benefits of a long-term care insurance solution? Please select all that apply. Base = 370; currently offer LTC.

ADVISORSCONSUMERS

• Traditional LTC insurance cannot provide the stability of guaranteed premiums.

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Affiliates are separately responsible for their own financial and contractual obligations.

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IMPORTANT INFORMATION