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A few weeks back I had the chance to speak to a group of estate planning attorneys about long-term care (LTC) planning. I was surprised to find that a number of people in the room had stories about LTC situations and clients that had not planned ahead. They wanted to know the long-term care planning landscape and which solutions were the best. They asked many good questions and left me with the impression they knew just enough to be dangerous. As I suspected, they wanted to know which solution worked best, standalone, linked or self-insuring. As I tell advisors all the time, there is no one size fits all solution, each case is different.
Is self-insuring the right option for a high net worth individual? It can be as long as they understand the need to have a written plan in place so that all family members will know how mom and dad want to be cared for. It’s been my experience that many wealthy individuals purchase standalone long-term care policies because they understand the risk and want access to the high quality care coordination that comes with a long-term care insurance plan. For these people, it’s not about asset protection as much as it is concierge health care.
What about these linked-benefit plans we are hearing about? Well, these are life or annuity products, but make no mistake, they are built for LTC. People who already said “no” to standalone LTCI are liable to find a linked product very appealing. Clients know the insurance company is going to be paying a benefit at some point, so there is no worry about paying for something you might never use. The triple play of LTC benefits, a death benefit or return of premium, make linked life products attractive. Good candidates are “self-insurers,” people with cash value life plans that they don’t need any more and those with lazy money sitting in a CD. Linked plans are no longer single premium only, there are 10 and 20 pay options and lifetime pay as well.
That leads us to standalone long-term care insurance policies. When do they make sense? Well, for pure LTC protection, these plans are the way to go. I argue that now is the best time to buy stand-alone LTCI since the products have all been priced with the latest claims data in mind, as well as low interest and lapse rate assumptions. Someone who has experienced a LTC event in their family is going to want to learn about standalone products. Business owners can deduct some or all of the premiums, perhaps a corporate plan makes sense with discounted unisex premiums and simplified underwriting. HSA owners can pay for some or all of the premium using tax free HSA dollars. Cash benefits, day one benefits at home and shared benefits are all available in a standalone product. You can get maximum customization.
As one attorney told the group, people start to plan when it’s too late and often that results in some bitter family feuds. The big thing of course, is to have a the conversation. Explain options to your clients and often they will tell you which route they want to take. The awareness level has never been higher, the need is there. Clients just want someone to talk to.