Self-insurance may be an option for clients who cannot qualify for LTCI coverage. (AP Photo/Mark Lennihan)

What steps are you taking to ensure your high-net-worth clients are prepared for the unforeseen in their future?

As advisors, we can’t predict an uncontrollable financial crisis or when assistance will be needed, but we can help our clients mitigate the risk with long-term-care insurance (LTCI). 

Three out of four Americans will have a need for extended care that is not covered by traditional health insurance or Medicare, at an average cost today of $300,000.

When clients want to self-insure against this risk, I recommend that they invest $300,000 in a vehicle with tax advantages and an inflation factor built-in. The vehicle can help the clients pre-fund their future long-term care (LTC) needs and increase the odds that the plan will keep pace with the rising cost of care.

If, however, a client is insurable, transferring the risk with insurance is more cost-effective. For younger, healthier clients, an LTC policy can create a $300,000 pool of money for a nominal premium. 

The $300,000 pool grows at a guaranteed interest rate, tax-free and creditor-protected during the client’s lifetime.

The money is available immediately if needed and as many times as needed throughout the policyholder’s lifetime.

The $300,000 LTCI fund is more likely than a self-insured fund to keep pace with the rising cost of care and makes it possible for clients to keep their lifestyle intact.

An LTC policy leverages a client’s smaller premium dollars to set up an account which is fully funded with money that is growing tax-free.

Often wealthy clients say they can afford to self-insure, but they are unaware of the tax implications alone of liquidating assets to pay for care. It is our fiduciary responsibility as financial advisors to point out the exceedingly high cost of such a strategy which can cause an estate millions of dollars in unnecessary asset erosion.

An LTC policy can be purchased for pennies on the dollar. If the arrangement is structured properly, there are tax advantages on the premium paying-side. Encouraging clients to use insurance to pay for LTC, rather than using assets, is cost-effective and provides peace of mind.

In the same way a competent advisor recommends a client insures his home against the risk of fire, competent advisors recommend LTCI as an integral part of long-term financial planning.

Advisors need to educate their high-net-worth clients because if they don’t protect their assets, generational wealth can be depleted. It is impossible to predict a LTC event but having LTCI will ensure clients receive high-quality care while keeping their estate intact. 

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