LTC for the Super Wealthy?

[Arthur Rudnick]

Here's a challenge for everyone:
I have the opportunity to run a webinar for a group of people who are very wealthy. I'd guess the minimum net worth is about 5 million and the max is into the 10s of millions.

So, how to you convince someone who is wealthy enough to self-insure that the prudent thing to do is to purchase a LTC policy?

I know a few basic "party lines" to address the situation but I'm looking for some ideas that I may not have heard in the past.

Thoughts anyone?

 

[leevena]

No different than from any other type of coverage. You are asking the person to identify what their risk is and then they need to decide whether to self-insure that risk or transfer to a carrier.

We just went through this with 2 family members who could no longer care for themselves. Custodial care could be anywhere from a few thousand dollars a month (lower end facility) to ten thousand a month (upper end facility). Then decide how long the expected stay would be. One of them lasted just under 18 months, while the other is into his 6th year. By the way, the 6th year person is costing $115,000 a year.

 

[dgoldenz]

Here's a challenge for everyone:
I have the opportunity to run a webinar for a group of people who are very wealthy. I'd guess the minimum net worth is about 5 million and the max is into the 10s of millions.

So, how to you convince someone who is wealthy enough to self-insure that the prudent thing to do is to purchase a LTC policy?

I know a few basic "party lines" to address the situation but I'm looking for some ideas that I may not have heard in the past.

Thoughts anyone?

Pull a switcheroo and make it a seminar on estate tax planning instead.

 

[VolAgent]

So which is the more economically sound option for these people, self-insure or buy a LTCi policy?

 

[GreenSky]

If they are going to self insurance anyway, why not mention the product you hate, Moneyguard? At least they can leverage $250K into over $1,000,000 in benefits.

Rick

 

[Arthur Rudnick]

Rick,
I'm not sure that "Hate" is the appropriate term regarding my feelings on Money Guard.

I personally feel a separate, stand-alone LTC & Life policy is the better answer. Is there a place for it? Probably.........

 

[yankee466]

Rick,
I'm not sure that "Hate" is the appropriate term regarding my feelings on Money Guard.

I personally feel a separate, stand-alone LTC & Life policy is the better answer. Is there a place for it? Probably.........

Since you hate Money Guard so much, go with TLC instead.


Else., just do your usual good job and they will all buy something from you. Maybe you can just ask them to put you in their will. It's better than making the pitch to a room full of broke people.

 

[Arthur Rudnick]

"Maybe you can just ask them to put you in their will"

Why didn't I think of that? Think it will work?

 

[billberry12]

Somewhere in the presentation, be sure and ask each one what they would liquidate first to pay for $100,000 plus per year LTC costs. Ask them about the tax consequences of this liquidation process. They could end up having to liquidate $150,000 a year to get a $100,000 net for cost of care. Not a good business decision for them is it? Then ask them if spending a few grand a year to prevent having to start liquidation makes since?

I wrote a friend of mine who is a multi millionaire a couple of months ago. He doesn't keep cash on hand much. He is heavy in real estate. This comment from me hit his hot button. He said he did not want his family to start selling anything because of the capital gains tax they would have to pay. He bought a $300, 000 pool of money with no inflation rider for $1300 a year. He decided that was enough to give him peace of mind. That was what he was looking for. PEACE OF MIND. I hit him with this idea, and 15 minutes later I was writing the application. Hope this help a little Arthur.

This is my best millionaire close. It works about half the time. I have found that if this doesn't work, not much else will. Move on to the next one.

 

[Arthur Rudnick]

Thanks guys.........
You all make some good points. However, I've dealt with people for years with $1, $2 & $3 million. But in this situation, I'll be dealing with people who have a minimum of $5 million and many who have in excess of $10 million. That's a little different.

I've gotten a lot of feedback from a number of industry contacts and the best advise came from an article written by Harley Gordon. I heard him say the same thing when I took his CLTC course. It made sense then and I guess it makes sense now.

I'm sure he won't mind sharing it with you. (I hope he won't mind sharing it with you)

Long-Term Care Insurance Is For the Wealthy

[Harley Gordon, Esq​

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 is it 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 LTCi 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.
3. Wealthy people can afford to self-insure.

Long-term care insurance doesn’t protect individuals – it protects income.

To understand what LTCi does, you must first 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, expecting to use it; if this were the case, the carrier would never issue the policy. As with these traditional products, people purchase LTCi 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 of needing care, only the to those they care about deeply. If they believe the consequences are severe enough, clients will then disregard risk and focus only on a way to mitigate them. 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 a 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 ever needs care over a period of years, his life is not going to end. The lives of those providing his care, as they know it, are going to end.

Clients work a lifetime to accumulate 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 sense, LTCi is no different than disability insurance: it provides a source of income. In this case, that income 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 or annuities.

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 about 3 years, which is then multiplied by an average cost of $75,000 per year, resulting in $225,000. This would seem well within the ability of a person with $2.5 million or more to pay But, this fails to take into consideration two critical issues; long-term care is not about nursing homes and income is used to pay for care.

Every carrier in the LTCi industry reports that the overwhelming percentage of claims submitted is for care at home and in the community. The cost of that care can 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 if the portfolio had 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 lifestyle and keep financial commitments. Therefore, $2.5 million is 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.

Harley Gordon is a practicing attorney in Massachusetts. His views on long-term care financing have been featured in various national publications and media sources including The Wall Street Journal, CBS Nightly News, and the PBS documentary, “Who Pays for Mom and Dad?” He has been a featured speaker at MDRT’s “Top of the Table” and various professional organizations including the Financial Planning Association (FPA), National Association of Insurance and Financial Advisors (NAIFA), and

National Association of Health Underwriters (NAHU). He was recently selected as one of the “10 Most Influential People” in the Long-Term Care industry by Senior Market Advisor.Harley is the founder of the “Certified in Long-Term Care” (CLTC)​

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