Long Term Care Insurance is For the Wealthy

Of all the obstacles long-term care insurance (LTCi) faces in becoming a viable product for the financial services industry, none is harder to overcome than the belief that it is inappropriate for high net worth individuals. These clients are generally defined in trade journals as having at least $2.5 million in investment assets.

This belief is based on fundamental misconceptions of what long-term care insurance actually does. That, combined with a historical antipathy towards the product, leads many to suggest, "You can self-insure."

There are three key misconceptions: 1) LTCi protects individuals, 2) LTCi protects assets, and 3) wealthy people can afford to self-insure.

LTCi Doesn't Protect Individuals - It Protects Families

To understand what long-term care insurance does, you first need to understand what motivates people to purchase it. The commonly held belief that individuals purchase the product for reasons such as, maintaining their independence, getting into a good nursing home, or to avoid being a burden to those they love, is incorrect. No one purchases any form of personal line insurance such as life or disability income to use it; if they did the carrier would never sell it to them.

As with these traditional products, people purchase long-term care insurance because they understand the consequences an unlikely event such as needing care would have on those they love. Simply put, reasonable people never assess the risk of needing care, only the consequences to those they care deeply about if they ever need care. If they believe they are severe enough, clients will then disregard risk and focus only on a way to mitigate consequences. It is therefore, essential for the professional to understand what these consequences are.

The majority of care is informal in nature, being provided by family and/or friends. This assistance, referred to as custodial care, is necessary because of chronic debilitating illness makes it difficult, if not impossible, for people to perform basic daily functions. The nature of custodial care can be all-consuming for the providers, leading to serious emotional and physical consequences. Put simply, if your client needs care over a period of years, his/her life is not going to end. The lives of those providing care, as they know it, are going to end.

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