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Should HNW Clients Insure for LTC?


Should high net worth clients insure for long-term-care?

Mark Twain is credited with saying . . . “It ain’t what you don’t know that gets you into trouble.  It’s what you know for sure that just ain’t so.”

I am aware of and agree with the consensus thinking that wealthy clients don’t need to buy long-term care insurance.  That doesn’t mean it isn’t a smart thing for them to do.  I learned this lesson over 10 years ago when an advisor and I were talking to a client about a second-to-die life insurance policy to provide estate liquidity.  The client was a retired executive of a major accounting firm and very astute regarding estate planning.  He had given away his unified credit, gifted some money to a family foundation and still retained a $20,000,000 estate.

During the planning process he asked his advisor and I about LTC insurance.  We had failed to even bring up the topic thinking he had enough to self-insure.  However, after a thorough analysis, he purchased a traditional LTC insurance policy with a high monthly benefit, lifetime coverage, paid-up in 10 years.  We felt compelled to ask him why he wanted this coverage and was willing to spend more than $22,000 a year for it.  His response permanently altered my perspective and today I think every client should have a LTC conversation irrespective of their net worth.  He replied: “I don’t know if I will need care.  I don’t know if my wife will need care.  If we need care, I don’t know how much it will cost and I don’t know how long we will have to pay.  That sounds to me like writing a blank check and I am not in the habit of writing blank checks.” 

The client also mentioned that in his situation he understood when he dies his family will forgo the $22,000 for 10 years and whatever it grows to.  With his estate tax exposure, they would only get about half of that amount anyway.  His final statement was: “for a small amount that my family will forgo in a potential extra inheritance, I don’t have the risk of writing blank checks, you do”.  Of course, he was referring to the insurance company’s obligation.

Since then, there has been an explosion of other options to secure LTC protection.  Many gravitate toward life hybrid plans because they can guarantee a client gets their money back [via the death benefit] if they don’t need care.  Today you can add a rider for LTC to any type of permanent insurance policy you want.  Some HNW clients that can afford to pay for a known outcome prefer the life with rider solution.  A life with rider design with a $1,000,000 death benefit assures that $1,000,000 will be paid as care, at death, or a combination of the two.  It is also paid income tax-free.

For a HNW married couple, we can use a trust to avoid the estate tax exposure on the death benefit.  A life insurance policy owned by a Spousal Lifetime Access Trust (SLAT) keeps the death benefit from being estate tax exposed while allowing access to the accelerated long-term care benefits if needed.  It is recommended to use an indemnity (vs reimbursement) product that is owner controlled.

Take a look at our NEW Integrated Insights™-Should High Net Worth Clients Insure for LTC? to examine this further.

Protect their future

Clients who are older or unhealthy may not be able to acquire coverage or have it priced well enough to purchase.  They can however help their children (and perhaps grandchildren) be better protected.  They can make gifts for a permanent protection policy that would put a safety net under them.  If they are already utilizing their gifts for cash or elsewhere in their estate plan, they can use inter-generational split dollar to avoid gift taxes.

Former first lady Rosalynn Carter famously said, “There are only four kinds of people in the world – those who have been caregivers, those who are caregivers, those who will be caregivers and those who will need caregivers”.

There is more to the LTC conversation than financials.  It is important to have a discussion of what the plan is if someone needs care in the future.  Many want to care for a spouse but there may come a point when they no longer can.  Watch this heartbreaking love story of a NY couple that struggled with this decision . . .

CBS/60 Minutes Story:  Following a Couple From Diagnosis to the Final Stages of Alzheimer’s

A great resource to have

Transamerica just released their Comprehensive Guide for Caregivers.  It is full of resources and other places caregivers can find direction and help ? not only for those just starting the process with a loved one but also for those who are current caregivers.   In short, the guide covers:  how to determine when care is needed, how to start that difficult conversation, legal documents to consider, health insurance and government programs, as well as financial & emotional support services available to caregivers.  Please be sure to download this great resource to share with your clients.

Comprehensive Guide for Caregivers



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