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.”