Not All Wealthy People Can Afford To Self-Insure

Financial and consumer publications will often assess the cost of long-term care in terms of nursing homes. By doing so, the math becomes simple: the average stay in a facility is 2.5 years, which is then multiplied by an average cost of $67,000 per year, resulting in $167,500. This would seem well within the ability of a person with $2.5 million to pay. This fails to take into consideration two critical issues. Long-term care is not about nursing homes and that income pays for care.

Every carrier in the long-term care insurance industry reports that the overwhelming percentage of claims submitted is for care at home and in the community. The cost of that care easily exceed a nursing home stay (which may never be necessary) and therefore must be factored into the overall cost of assistance over a period of years.

Assuming a 5% rate of return and that 100% of the portfolio is in income producing investments, $2.5 million would generate approximately $125,000 each year. As previously stated, it is likely that income is fully committed to support lifestyle. Question: Where''s the money going to come from to pay for care?

What about the client with $20 million in assets? The first question to ask is, "What is the nature of his or her assets?" Many small business owners have the majority of their wealth tied up in their company. Paying for care can pose a liquidity problem. Have you considered the tax consequences of liquidating assets in order to pay for care? What of the portfolio has to be sold in a bear market? There is also the issue of legacy assets and which of them would have to be sold to fund care over a period of years.

SUMMARY: Clients nearing retirement focus not on assets, but how much income they will need to support their lifestyles and keep financial commitments. $2.5 million is therefore reduced to the income it generates. Since that income is already committed, it presents the client with very difficult choices, should care ever be needed in the future.

If you are considering the self-insure approach, let me show you a way to use an existing asset to leverage the potential risk. If you don't use it for long-term care you still hold the asset.

Call me at 239-280-3246 today or eMail me by clicking here

LTCi Doesn't Protect Assets - It Protects Income

It has long been held that long-term care insurance protects assets. It doesn't; it protects income. Clients work a lifetime to accumlate a portfolio which will generate sufficient income in order to maintain their standard of living during retirement. This lifestyle also includes keeping prior financial commitments. It is not unreasonable to assume that retirement income is matched almost dollar for dollar with retirement expenses. Since nothing has been allocated to pay for care, the income, already committed, will have to be reallocated. Where else can the money come from?

In its purest, long-term care insurance is no different than disability insurance; it provides a source of income. In this case, that inmcome can be used to pay for care. This allows the client's retirement income to continue to be used for its intended purpose, supporting lifestyle and keeping financial commitments. Without the product, the family has limited options. They can curtail their lifestyle or liquidate assets. The former may have far reaching consequences. The latter may create serious tax issues and/or shorten the payout of qualified funds and annuities.

NEXT Posting> Not All Wealthy People Can Afford To Self-Insure

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.

NEXT Posting> LTCi Doesn't Protect Assets - It Protects Income

What if I purchase Long Term Care and never need to use it?

I’ve wasted my money, right? Of course not, you’ve benefited from having the peace of mind that your care is guaranteed if you ever need it. The purpose of insurance is to cover catastrophes and we all hope we never need to use it!

Let’s make a comparison. What if you could buy a policy to insure your $500,000 home and pay a single premium of $100,000? Then fifteen years later you sell your home never having used your home insurance. How would you feel if you could get your $100,000 premium back? You’d be ecstatic!

You can do that with Long Term Care! Instead of insuring your home you insure yourself. You can buy a Long Term Care Policy with a single premium and if you don’t need to use it the premium will be returned to you, guaranteed!

Call me for the details.

Your Future

No one can predict the future! Minimize the stress in your future by implementing a Long Term Care plan now!

It is important to have your plan in effect before you need it. If you put off purchasing a plan until you need it you may not qualify for it due to your health. If you do qualify the cost may be prohibitive. The best time to purchase Long Term Care is now, because premiums are based on your current health condition and age.

Don’t put off for tomorrow what needs to be done today!

Give me a call and allow me to share the many options and plans available in today’s market. There’s one that’s right for you

You're NOT Too Young To Plan NOW For Long-Term Care

November is Long-Term Care Awareness Month, .... even the U.S. Congress has urged "the people of the United States to recognize (this) as an opportunity to learn more about the potential risks and costs ... and the options available". We're proud to support this important educational campaign.

Smart reasons to think about long-term care as part of your overall financial plan.

You protect against other risks like a car accident or house fire. A need for long-term care is a risk to your savings and to your retirement. It will impact your family and loved ones. Just as it is smart to plan ahead for retirement, it's smart to plan now for long-term care. Here are some things you should know:

Buy before age 65; avoid the high cost of waiting. Your age and your health are important factors that determine the cost of long-term care insurance protection. Costs are based on your age at application and go up each year. By waiting to purchase until you are closer to retirement you might find it's just too expensive to buy this important protection.

At younger ages you can lock in good health special savings. Your good health today can help you "lock in" preferred health discounts that won't change even if your health does. If you currently have a health condition it's especially imporant to find out if you can health-qualify before it may get worse.

Discounts can help significantly reduce the costs. I believe you will be surprised by how affordable long-term care insurance protection can be for some of the newer plans suited for people your age. Today, there are ways to reduce the cost of long-term care insurance; savings available when you plan ahead.

The first step is in yourn hands. Getting the information you need to make an informed decision is always a smart move. Waiting is never advantageous. I encourage you to make this first step. Call or email me. There's no obligation, of course, Make Long-Term Care Awareness Month the time you start planning!

Additional Legal News ... You can Use

Question: Can a long-term care insurance policy be owned by an (irrevocable) trust? The goal of having this done to have the trust pay benefits directly to a facility so the actual person won't lose VA access to whatever care VA covers. It seems that if one had income from a policy reimbursemnent, it could mean they couldn't get the VA coverage.

Answer: To answer this question, our expert spoke with the VA to get a more definitive answer, but they didn't have an answer either without consulting the local eligibilty office (so the final outcome could depend on where the individual lives).

A long-term care insurance policy can be owned by an irrevocable trust if the carrier allows 3rd party ownership. That being said, this may not accomplish what the client wants. I assume the client is concerned that the LTC benefits would disqualify him or her from medical benefits (as the VA nursing home is free). If this assumption is correct, are the client's VA benefits dependent upon low income? If not, the benefits should have no effect on eligibility. If the benefits are dependent on low income, it does not appear that the application asks for such payments in the income section, however, they should contact the local VA eligibility office to definitely answer that income question.


Question: If a single woman buys LTC insurance and then later gets married and the spouse buys coverage, is the spousal discount applied to the second policy? Or, how does it work?

Answer: With most carriers this is how it would work. Ms. Smith purchases coverage with carrier "x". When married and Mr. Jones gets coverage (also with carrier "x") Mr. Jones' policy will be issued with the spouse discount. The new Mrs. Jones (Smith-Jones if you prefer) will have the spousal discount applied as of the effective date of her (new) husband's policy. Rules will vary from insurer to insurer and because the spousal discount can be so significant, it is worth checking this out in advanced.