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Life Health > Long-Term Care Planning

Asset-based long-term care: A versatile wealth protection weapon for financial professionals

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As few certainties as there are in life, history tells us it’s safe for financial professionals to presume health care and long-term care costs can take a large bite out your clients’ retirement nest eggs. And, given the rapidly escalating cost of care, that bite could be much larger than anticipated.

Health care and long-term care during retirement is expensive—and it’s not getting any cheaper. The Retirement Health Care Costs Data 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. Meanwhile, the same report points out that the U.S. Department of the Actuary is projecting health care inflation will remain at a lofty 6 percent for the next decade.

As painstakingly as you have protected your clients’ wealth and helped them accumulate assets for retirement, figures such as these suggest that a single health care crisis or long-term care event can quickly undermine even a seemingly air-tight retirement plan—and irreparably damage a client’s retirement nest egg—if that plan doesn’t include an asset-protection component that directly addresses the risk of a costly care event. 

“A catastrophic health care event is the major thing that can blow up an affluent client’s financial or retirement plan,” says Michelle Prather, Regional Marketing Director, Care Solutions.

“You’ve created this plan, but that plan won’t execute if there’s a hole in its long-term care component,” adds Chris Coudret, CLU, ChFC, vice president & chief distribution officer for Care Solutions. “Everything you’ve built as far as accumulation, and everything you’ve planned for as far as distribution, you’ll have trouble executing when you start pulling thousands of dollars a month out of the plan to pay for a costly care event.”

Asset-based long-term care products provide a means to mitigate that risk and remove that retirement plan blind spot. These products come in the form of either a life insurance policy (such as whole life) or an annuity contract (such as a deferred annuity or fixed indexed annuity) with a built-in LTC benefit that allows the contract holder to access the death benefit or contract value to pay for qualifying care expenses (distributions that typically come out tax-free to the recipient). 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.

For many financial professionals and retirement-minded clients, the most salient feature of these products is asset protection. “Today people in their late 40s and early 50s are buying them as a wealth-protection instrument that gives them the flexibility to get health care at home if they should need it,” explains Coudret.

“What really scares people is the, ‘Oh my gosh, how long is this care event going to last?’” said Prather. “Think about it as you would a health savings account. It comes with a high deductible that you don’t want to pay, but paying it won’t wipe you out financially. What could wipe you out without insurance to protect you is something like cancer or an accident. So even the affluent need the catastrophic coverage for their family. The same concept applies with asset-based long-term care,” she said.

“These products aren’t put in place to make someone rich,” Prather said. “They’re put into place to keep them from becoming poor. The last thing on earth Baby Boomers want is to be a burden on their children in their later years.”

Instead of simply setting aside a lump sum of money in a low-earning vehicle such as a savings account or CD to cover the cost of a care event, investing it in an asset-based LTC product multipurposes that money and leverages up its value to use either to cover the policy owner’s long-term care costs while they’re alive or to pass on to beneficiaries later. One way or the other, the investment pays off.

From a wealth management perspective, leveraging protection around a client’s assets frees the financial professionals to focus on the client’s portfolio to generate growth and retirement income while preparing for potential wealth transfer later.

To gain further protection in an environment in which health care and long-term care costs are rising at rates that far surpass inflation, certain asset-based LTC products also carry optional riders that extend LTC benefits to last a period of years or a lifetime, even after the base policy’s LTC benefit balance has been exhausted.

A final note to financial professionals: In protecting client assets, asset-based LTC products also protect the assets you manage. The more assets a client is forced to spend down to cover the cost of a catastrophic health care or long-term care event, the fewer assets you’ll likely be concerned with, Prather said. “If a client decides to self-fund a long-term care need, they could end up pulling hundreds of thousands of dollars out of accounts that financial professionals are managing or investing for them. That’s going to effect the financial professionals’ business, too. They need to protect their portfolio just as much as the client needs to protect theirs.”

Questions about asset-based LTC products? Contact OneAmerica at 1-844-833-5520.

OneAmerica is the marketing name for The State Life Insurance Company® (State Life). Products and financial services issued and underwritten by State Life.



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