Protect Client Assets with a Long-Term Care Insurance Planning

long-term-care-insurance-planningWhat is the biggest threat to a secure retirement plan? The escalating costs of health care and long-term care expenses. The most recent estimates from Fidelity predict that a couple retiring today, at age 65, will spend $245,000, in today’s dollars, to cover medical expenses throughout retirement. That does not include long-term care expenses.

Although each situation is unique, the typical long-term care period lasts between two and four years and involves three phases: First, receiving care at home from a home health worker; second, transitioning to assisted living or adult day care; and finally requiring nursing home care.

Using Genworth’s 2016 Cost of Care data, 12 months of home care, 12 months of assisted living, and 6 months of semi-private nursing home care comes to roughly $130,000. That’s if you paid for it today. The same scenario, in 2026, is expected to cost more than $234,600.

It’s easy to see how long-term care needs can demolish a retirement plan that failed to account for such a sizable expense. When talking to your clients, it may be most effective to discuss the potential impact of these costs on the legacy they’re able to leave.

Also be prepared to address the range of solutions available to mitigate the asset drain caused by long-term care expenses. Most products base eligibility on the inability to perform two activities of daily living. Beyond that, benefits, distributions, and funding vary.

Below are some of the more common approaches:

  • Traditional long-term care insurance: Long-term care insurance, a true risk transfer product, provides a pool of benefit monies distributed monthly for covered incurred expenses. Reimbursement option is most common; some carriers offer a cash benefit option. The policy typically imposes a waiting/elimination period based on calendar days or service days. Premiums are not guaranteed, and although the industry has significantly improved pricing models, carriers may request premium increases. Underwriting can be a barrier for some clients and advisors. Traditional long-term care insurance offers some tax savings, and Partnership Qualified plans protect assets from Medicaid spend down requirements.
  • Life insurance with a long-term care rider: Many life insurance products offer a long-term care or chronic illness rider that provides for advanced distribution of the death benefit if the insured meets the eligibility conditions. Many impose a maximum monthly distribution that is a function of the death benefit. Some products include a small residual death benefit if expenses consume the entire death benefit. Covered expenses vary and the waiver of premium benefit may not include long-term care as condition. Underwriting is often more lenient; the carrier is primarily concerned with mortality rather than morbidity. A client with health history that may make traditional long-term care underwriting approval unlikely, may be a good fit for life insurance with a long-term care rider.
  • Long-term care insurance with a death benefit: Positioned to compete with life-combo products, this recently introduced product provides a higher long-term care benefit than most life-combo products, while preserving a portion of the premium investment via a cash surrender / return of premium rider death benefit. The product also offers a lifetime benefit option, something not seen in the industry for some time. The Single and 10-Pay premium features gives the product several advantages. The Single Pay easily facilitates a 1035 exchange for clients with an eligible annuity or life insurance policy that is not a key part of the overall retirement plan. The 10-Pay option is attractive to working clients who can budget for premiums while still earning income from employment. Both options ensure policyholders will not be subject to future premium increases if it becomes necessary and alleviates the need to include premiums in the post-retirement budget. Like other long-term care policies, this product allows for joint policies and offers the option for facility only or comprehensive care coverage.
  • Short-term care insurance: Some carriers are rolling out products that cover long-term care but for a shorter time period. That makes the premium more affordable but also leaves some financial exposure for the client who needs extended care. Short-term care products may be more easy to qualify for because the risk is more limited than with a traditional long-term care policy.

Matching product to client                      

The most important step for an advisor is to start the discussion with the client about the need to protect their assets and estate from the possible devastation of long-term care costs.

You can rely on Brokers Central to help you weigh the pros and cons of each option and help choose the best fit for your client. Actually, the best choice for your client may be a combination of products depending on the client’s other financial objectives and budget. We will help you prepare for the client presentation so you feel confident with your recommendation and at ease discussing your rationale.

Give Brokers Central a call at 845.495.5000 to learn about these and other ways to help your client plan for the risk of long-term care. No retirement plan is complete without a plan for long-term care.

As the Founding President of Brokers Central, Yoel Bodek has an innate understanding of how financial products work together to solve clients’ business, financial security and wealth accumulation goals. View Yoel’s BioEmail Yoel.