As the affluence level in the United States continues to increase, especially among women, a growing number of people are seeking more sophisticated solutions that not only protect against the financial risk of long term care but also protect the value of their estate.
The insurance industry has responded to this growing need for overall protection by creating hybrid asset-based long term care insurance products.
The attraction of these linked benefit asset-based products is simple, and it makes effective use of riders.
Specifically, these products combine the benefits of traditional life insurance (such as a universal life policy) with the protection of a long term care rider. If the insured needs LTC, both the life insurance benefit and LTC benefit are combined, together providing tax-qualified LTC protection. In the event no LTC need arises, the death benefit provides a tax-free legacy plan.
All of this is accomplished without sacrificing control over the asset, through a contractual return of premium feature.
The industry needs to expand sales possibilities by adapting and evolving its sales strategies to include these new asset-based insurance products. The objective must be to provide clients with as much money as possible at the time of need to impact their lives in a positive way.
This change of focus takes the financial advisor out of the realm of narrow expense-based “product sales” focus and into a real client-focused and asset-based risk mitigation strategy.
Let’s look at an asset-based LTC insurance sales strategy for CD rollovers, using a UL policy having an LTC rider.
The appropriate clients are currently self-insuring against potential LTC needs, with liquid assets in interest-earning accounts. These “rainy day funds” are kept in vehicles such as money market accounts, bank CDs or savings accounts that typically earn very low interest. The clients plan to use the “rainy day fund” in the event an LTC need arises. However, their real belief is they will never need LTC; they expect their savings will become part of their legacy plan.
In this scenario, the advisor can show the clients how they can use even just a portion of this “rainy day fund” to fuel an asset-based LTC insurance product that provides tremendous leverage for either the LTC need or a legacy plan.
For example, if the clients roll over the $50,000 that is currently stored in a CD to purchase an asset-based LTC insurance policy with a death benefit of $100,000, this would double the leverage of that asset for the client for legacy planning purposes. With the addition of the LTC rider, which could add up to another 4 years of coverage, the overall amount of LTC protection (accelerated death benefit + LTC rider) is equivalent to up to 6 times the original asset: $100,000 + (4-year rider @ $50K/yr = $200,000) = $300,000 or 6 years of $50,000.
In this example, the life insurance creates a $100,000 tax-free legacy plan for clients to transfer to their beneficiaries if it is unused for LTC purposes. That’s potentially double the amount of the legacy the client would have left if the cash had remained in the CD. Additionally, the interest rates of asset-based LTC insurance products are designed to offer more growth than the low-interest options that banks offer.
In this way, LTC is no longer simply an “expense” oriented sale. Clients don’t have to be convinced they will ever have an LTC need because the advisor is working with clients who already see the value in planning for LTC expenses. They are self-insuring through the use of a liquid asset in their own funds. The advisor simply suggests that they select the best place to store that asset.
It’s about finding the most appropriate strategy for these clients and finding the proper allocation and right vehicles for these funds.
By using a hybrid product and an asset-based strategy, advisors can reposition an appropriate percentage of these assets into a tool that helps mitigate the risk of LTC, giving clients the control and tax benefits they want with the protection and asset leverage they need.
Mark Doherty is second vice president-product manufacturing with the Lincoln National Life Insurance Company, Hartford, Conn.
These hybrid products combine the benefits of traditional life insurance with the protection of a long term care rider
Points To Consider
Is there a money-back guarantee?
This is most significant to clients from an emotional standpoint. Even if the clients never want to pull all their money back, the mere fact that they could helps to bring them peace of mind. They relax knowing it’s not an irrevocable decision. Think twice about any product that doesn’t offer such a guarantee when purchased with a large single deposit. And remember that guarantees are based on the financial strength of the issuer.
Is the LTC benefit tax-qualified?
Part of the purpose of putting money in an asset-based LTC insurance product is to cover potential LTC costs. So, make sure the LTC benefits in the product are qualified and therefore tax-free when paid to the clients. Maximize the financial impact of those eventual benefits.
Is the LTC benefit complete?
Make sure the LTC benefits are complete, meaning they should broadly cover various LTC situations, such as nursing homes, adult day care, home care, etc. The goal here is to help the clients keep their options open. The product should be in line with that goal.
Is the carrier highly rated?
Remember, this is LTC and life insurance. Make sure the product is offered through a highly rated company. Both advisor and client should feel confident about the company’s commitment to this type of coverage.
Source: Mark Doherty, Lincoln National Life Insurance Company, Hartford, Conn.