Many prospects agree that they need and should buy long-term care insurance but they tell you that they just can’t afford the monthly premium. Here are three strategies for helping clients find the money.
Consider Assets as Well as Income
Timothy Kelly, CLTC, vice president, sales with Individual Commercial Brokerage (ICB) Inc. in Rockaway, New Jersey has found that advisors and prospects often mistakenly think solely about using current income to pay for LTCI. But that’s impossible for many prospects because they spend everything they make and more each month. “So, when you tell someone it’s going to cost $300 a month for a long-term care premium, they immediately think there’s no way that I can afford that,” he said. “I already spend every penny that I have and, so, no thank you, I won’t do it.”
A better approach is for the adviser to conduct an in-depth review of the clients’ financial resources during the fact-finding stage. The review should cover both income and assets, including qualified retirement accounts, nonqualified money, annuities and life insurance cash value. All of these assets can play a role in determining and funding the right LTCI solution, he maintains. “Once you go through your fact-finding, it will become pretty clear from where they can afford the premium and a lot of times that’s getting the money out of assets and not out of income,” he said.
He cites the example of a prospect with $400,000 in financial assets. Allocating 1 percent of that amount to a $4,000 annual LTCI-premium to protect the remaining 99 percent resonates with clients, he said, and it leads them to think differently about paying for the coverage.
Look for 1035 Exchange Opportunities
Alternatively, the fact-finding could lead to buying LTCI in a hybrid annuity or life policy if that approach fits best with the client’s situation. For example, if the client has much of their financial wealth in annuities, moving part of the funds to an annuity plus LTCI hybrid via a Section 1035 exchange would provide the coverage without triggering income taxes. “Understanding where their assets are currently helps you to figure out the most efficient way to use what they currently have to solve the long-term care problem,” Kelly said.
William R. Borton, CLU, managing principal with W.R. Borton & Associates LLC in Marlton, NJ, agrees that using values in existing annuities and life policies can help clients identify available funds. Although annuity values can’t be exchanged to life insurance policies, transferring from an annuity to another annuity with a LTCI benefit transfer is permitted. “Some of the annuity-linked products may not get you quite as much leverage but there again, it’s a good way to use existing money that may not be needed for what it was already purchased for,” he said.
Take Advantage of RMDs
Many people are illiquid because they have much of their wealth in retirement plans, says Borton. Another drawback with retirement plans is that required minimum distributions (RMDs) from the plans put extra taxable income into clients’ hands whether they want the distributions or not. Using their RMDs to fund LTCI—even starting the distributions before the age 70½ mandatory starting age—can help clients work around the illiquidity problem and get the coverage in place, he said.