No issue keeps clients and financial professionals awake at night more than the prospect of running out of money during retirement. But the reality is that retirement nest eggs — and financial professional's assets under management — are highly vulnerable to a costly health care crisis or long-term care event unless steps are taken to plan for those very real possibilities.
That's where an asset-based long-term care (LTC) life insurance or fixed indexed annuity product can help. Here are 10 reasons financial professionals should consider these asset-based LTC products in the context of retirement planning:
1. Versatility: They allow financial professionals to multi-purpose client dollars. Asset-based long-term care products are life insurance policies (such as whole life) or annuity contracts (such as a fixed indexed annuity) that come with a built-in long-term care benefit that allows the contract holder to access the death benefit or contract value to pay for qualifying LTC expenses. Meanwhile, the contract's cash value continues to grow and, if it isn't used to cover an LTC event, it remains in the contract, to eventually transfer to beneficiaries. "They get benefits either way," said Dennis Martin, FSA, FCIA, MAAA, vice president, senior business & product development officer, OneAmerica companies. "People are willing to pay for the certainty of not having to deplete their assets. There is great value in that, especially for people approaching retirement."
2. They address a pressing need for retirement nest-egg protection. At least 70 percent of people over 65 will need some form of long-term care services and support during their lifetime, according to longtermcare.gov, a U.S. government website. And that need can put quite a dent in retirement savings. A 2015 report from HealthView Services estimates that a healthy 65-year-old couple retiring in 2015 will pay an average of about $395,000 in lifetime retirement health care costs. For a 55-year-old couple retiring in 10 years, that figure rises to about $464,000. The report also notes that the U.S. Department of the Actuary projects health care inflation remaining at a lofty 6% for the next decade.
3. They provide cost certainty, with premiums that are guaranteed never to increase. Asset-based products can either be purchased with a single premium, or maintained with an annual premium that is guaranteed never to increase.
4. They're tax-efficient. Rather than parking money in a low-yielding CD or savings account, asset-based LTC products give financial professionals the means to leverage those dollars inside a tax-favored vehicle. Distributions from an asset-based LTC product that are used to cover qualified long-term care costs typically come out tax-free to the recipient. And if funds from the contract aren't used for LTC, the death benefit from the contract passes tax-free to beneficiaries. In addition, using money that must come out of a retirement account in the form of a required minimum distribution to fund acquisition of an asset-based LTC product can be an effective planning strategy.
5. They allow financial professionals to protect their assets under management and preserve the integrity of their retirement. A catastrophic health crisis or extended LTC event can quickly drain client assets. Having asset-based LTC in place protects assets while also preserving the integrity of the financial professional's retirement income planning. "You create this distribution plan for a client that won't execute if there's a hole in the client's long-term care planning," said Michelle Prather,Regional Marketing Director, Care Solutions. "Everything you have helped them build as far as accumulation and everything you planned for in terms of retirement income goes instead to paying for long-term care." There is also the added benefit of knowing a client's retirement is protected with asset-based LTC. As a result, the financial professional can appropriately position other parts of the portfolio more aggressively to generate growth and income.
6. They're a solid asset on the client's balance sheet. Unlike most stand-alone traditional LTCi products, asset-based products build cash value over time.
7. They overcome underwriting issues. With simpler, less onerous underwriting, clients who might not qualify for an affordable traditional LTCi policy because of age and/or health may be more apt to secure affordable LTC coverage with an asset-based product.
