Premium cost is a genuine issue for some long-term care insurance prospects. That doesn’t mean in every case they lack sufficient assets to benefit from the coverage, it might simply be a matter of tight cash flow. Senior Market Advisor asked several experienced advisors how they help cash-strapped clients pay for the insurance.
Use the RMD
If a prospect is forced to start taking required minimum distributions from his or her retirement plans at age 70-and-a-half, those distributions are a new source of cash flow. Bill Pope, CLTC with Keeble & Pyke Financial Advisors Inc. in Stockbridge, Ga., says RMDs are a natural funding mechanism. “It’s not additional income that they have to come up with,” he says. “It’s money that the government is causing them to draw out of their qualified plans.”
Another technique Pope suggests is to shift assets from maturing certificates of deposit into life insurance or annuity contracts that offer LTCI benefits. In the current low-rate environment, the client is likely to be earning only a minimal return on bank deposits. Can that money be repositioned for a better rate of return and more appropriate role in the client’s portfolio, Pope asks. “We’re talking about if a person has a $100,000 CD and they’re right now getting about 1.5 percent to 2 percent,” he says.
Review the budget
Brian Kazinec, CLU, ChFC with Prudential’s Southern Financial Group in Atlanta, says many people lack a clear idea of their budget. Therefore, he helps them identify fixed and variable expenses. It’s a successful strategy. “Eighty percent to 85 percent of the time we’ll find the dollars needed to pay the premium,” says Kazinec. “Folks are paying extra on their mortgage. Paying more than the required amount on the mortgage each month is voluntary — it’s not required.
That $200 to $300 a month that they were throwing in there extra is variable dollars. Maybe foregoing a couple dinners with wine in a month to make sure that they have long term care insurance is important to them. Going through the budget for many folks is a big help for them to understand that they do have the dollars.”
Insurance policies that at one time made sense now may be superfluous; when that happens, those premiums can be redirected toward current needs like LTCI.
“One of the things we will talk about with our clients is, especially as they near retirement, is to look at their disability insurance coverage,” says James Holtzman, CFP, CPA with Legend Financial Advisors Inc. in Pittsburgh.
“Maybe you’re not going to get as much bang for the buck on the policy as you once did,” he says. “Perhaps that is one area where you can shift some premium dollars over to the long term care insurance policy. We take the same approach with life insurance–it all depends on why the client has life insurance.”