Planners agree that with increased life expectancy, many retirees run the risk of outliving their assets. Running out of money may not be the result of living too long but is more likely due to the high expenses associated with long term care services.

“Probably the biggest threat to outliving their assets is the long term care threat,” says Steve Bowlds, president of Retirement Benefit Advisors, Sand Springs, Okla.

He notes that even though an 80-year-old has a greater than 50% chance of needing some type of long term care, most seniors dont recognize it. “Theyre in denial,” he says.

“LTC is a much tougher sale, its almost like trying to sell disability insurance to a 35-year-old who thinks hell never become disabled,” adds Robert A. Kaiser, president of Kaiser Financial Group, Fanwood, N.J.

Furthermore, many retirees go through “sticker shock” when they see how expensive a LTC insurance policy can be. “The benefits are fantastic in relation to the premium, but most of the prime candidates look at it and take a step back,” he says.

“I think the most compelling argument is that if you need it at any given time, one year of benefits would recover almost all of the premium youve paid–no matter how long youve had the plan in place,” adds Joseph T. Molony, a financial representative of the Northwestern Mutual Financial Network, Lancaster, Pa.

But some retirees would rather take the chance and not purchase a LTC policy, he says, and instead would rather spend down assets in their estate to cover the expense.

This approach usually results in an additional life insurance need. Recognizing that people buy life insurance at different times in their lives for different reasons, Molony feels one reason to keep a permanent life insurance policy–or even to convert a term policy–is to replace those assets in the estate that may be used for long term care expenses. “At your death the death proceeds would replenish the estate for the survivor who had to spend it down when it was needed for long term care,” he says.

But those retirees who had someone in their family who needed long term care are very open to purchasing a LTC policy. “Those buyers are attuned to it,” says Kaiser.

As a financial planner, Bowlds feels he has a responsibility to make his clients aware of the risk that the costs associated with needing long term care can completely wipe out a retirees nest egg. By spending time repositioning some of his client’s assets, Bowlds is able to generate some income from hidden assets that can help pay for LTC insurance without having an impact on his clients lifestyle. “You have to show them a creative way to pay for this,” he says.

Some techniques Bowlds uses include repositioning CDs into annuities for greater income, executing a reverse mortgage to free up the equity in the home, or using some of the new hybrid products available today, which address multiple needs.

One product Bowlds has placed his clients in is a single premium life insurance contract with an accelerated death benefit option to cover LTC expenses. “If they need it, 80% of the death benefit is available for long term care,” he says. “If they dont need it, the death benefit goes to the spouse income tax free.”

–Barry Higgins


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 4, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.