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Long-Term Care: Not If, but When

Figures the U.S. Department of Health and Human Services show that nearly 70 percent of people turning age 65 will need long-term care at some point in their lives.

Yet, according to a study by the Associated Press–NORC Center for Public Affairs Research, only 54 percent of Americans age 40 and older have planned for long-term care.

It’s likely not a matter of if your clients will need long-term care—it’s a matter of when.

“As we age, the likelihood of needing long-term care services increases, so as our population ages, we will certainly see a burgeoning demand for long-term care services,” wrote Jamie Hopkins in a recent Forbes article titled “5 Long-Term Care Planning Lessons from ‘Willy Wonka and the Chocolate Factory.’”

The first step, Hopkins advised, is to talk to your clients and their families about what they want and what they can afford, then move toward developing a plan together.

According to FedSavvy Educational Solutions, clients have several options to fund long-term care expenses. Planning options for clients may include:

A traditional long-term care policy. This route may be expensive. InvestmentNews reported that as of 2016, rates were up as much as 126 percent since 2015.

A hybrid life and long-term care policy. These universal life policies typically have a chronic care rider.

Self-insuring. This option is often for people who haven’t planned and who are very wealthy.

Co-housing or communal living arrangements. This could include home sharing (renting out a room in their home) or living in a co-housing community where people share in the care and daily living tasks, such as grocery shopping or cleaning.

Qualifying for Medicaid. Some states have expanded Medicaid under the Affordable Care Act, so check your state’s income qualifications. Though stay up-to-date on the current health care debate.

“There is a real need to be prepared ahead of time,” Hopkins wrote in Forbes. “Failing to plan for the eventuality of long-term care leaves the financial security of a family completely up to chance.”


Ana Trujillo Limón is associate editor of the Journal of Financial Planning and the editor of the FPA Practice Management Blog. Email her at alimon@onefpa.org. Follow her on Twitter at @AnaT_Edits.

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Integrating Insurance Products

At its core, a wealth plan is simple. It models a funding source at a given point in time against a funding use. More funding sources than uses leads to increased wealth, but more uses than sources leads to failure unless corrected.

Common sources used to fund a client’s needs and goals are cash and income (working or retirement) for short-term needs, and wealth in the form of portfolios and property for the mid- to long-term horizons. Often sitting orphaned in the investment plan are a client’s insurance products be they property and casualty, disability, life and long-term care.

Incorporating adviser-focused insurance products affords the adviser an opportunity to develop an added-value component to the overall investment plan.

Protective Value
The concept of spreading risk for a catastrophic event across a large number of people, with each individual contributing a relatively small amount of money compared to the protection provided, is one of the great inventions for wealth sustainability. It’s not a stretch to say that our ability to live with much less anxiety, and, even, for our economy to function efficiently, accrues through various insurance applications.

For those who have suffered the loss of a home to fire, a lengthy illness or caused a serious car accident, insurance protection is not a concept but a literal wealth saver.

Since clients may forget the value insurance provides, it’s essential to produce scenarios that illustrate the gaping hole left in the family’s wealth should a catastrophic event occur with no insurance coverage. The insurance money paid at these times has enormous monetary value on par with any other financial program.

Conflicts to Usage
Nearly all insurance has an event trigger such as an accident, illness, incapacity, or death in order for financial benefits to be delivered; these benefits flow into the wealth plan as a direct financial resource to compensate for what was lost. It’s a double-edged sword: “I get a financial benefit, but only when something bad happens.”

Moreover, life insurance and annuity products often come with many obstacles that sap the benefits they deliver. Sales commissions, complexity and loss of control keep advisers from embracing these products as important tools in delivering the investment solutions clients need.

Embracing Added Value Benefits
Life insurance and annuity products are quickly evolving with an emphasis on fee-based advisers. Indeed, the soon-to-be-implemented DOL fiduciary rule is speeding the shift from commission-based compensation to AUM-based fees aligned with a fiduciary standard. And, these products come with low costs and simplicity.

Variable products (dedicated portfolios backing the insurance or annuity benefit) with stripped down expenses and adviser-compatible compensation keep the adviser as the wealth shepherd and not the insurance company. This control is essential for an adviser to deliver a practice management solution that forms a total investment program based on its ability to solve a client’s needs, anxieties and aspirations uncovered during the wealth planning process.

Loury_March 2016This table identifies the many benefits an adviser-focused variable universal life policy (VUL) provides in addressing key planning tasks for an adviser’s high-income clients.

With these benefits supporting multiple planning needs, while producing financial benefits, the adviser can draw a common thread from service application to a client’s ROI.

Life Insurance as a Funding Source
Comprehensive wealth management drives to an executed solution that considers all available tools from cash management to investment products to insurance to trusts.

VUL is a portfolio container in which its structure and associated benefits are created through laws and regulations; this is the same formation for mutual funds, 529 plans, IRAs and 401(k)s.

Unlike these other vehicles, VUL allows tax-free cash access via premium withdrawals and/or loans against the cash value (i.e. the policy owner borrows from him or herself), and this opens up a number of high-efficiency funding options for other wealth needs. VUL is like a Roth plan without restrictions.

Connecting the Generations
As noted in the table above, the flow of adviser-focused VUL benefits can touch not just the primary client, say, mom and dad, but downstream generations through beneficiary designations or the parents paying the premium for adult children’s policies. Note that such strategies are best discussed with the client’s insurance consultant and/or trust and estate attorney.

These wealth transfer and planning tasks keep the adviser as the builder, manager and monitor of the policy’s underlying portfolio. In this way, insurance shifts from an orphaned position to one that is fully integrated in the investment plan’s execution.

Kirk Loury

Kirk Loury
Wealth Planning Consulting Inc.
Princeton Junction, New Jersey


Editor’s Note: Other Financial Planning Association content that may be of interest to you includes: 

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When It Comes Insurance Planning, It’s OK to Pass the Baton

Life InsuranceLife insurance isn’t sexy. It’s kind of like the orthopedic shoes you should wear when you’re doing something that requires walking all day long—not sexy but probably a good idea.

According to a 2013 survey by Saybrus Partners Inc., less than half of advisers surveyed said their efforts to provide life insurance and pertinent advice were successful. Mostly, Financial Advisor Magazine reports, because they feel it detracts from their “regular” business—like the business of investment management.

Clients of all ages may be reading about life insurance and misunderstanding the specifics so they either forego it or make costly mistakes. So brush up on your life insurance knowledge and figure out the best way to address the topic—even if it means passing the baton to a more knowledgeable professional.

Clients Need Help, Are Underinsured
Many articles out there are telling consumers what they should be getting from financial advisers, and one of the most consistent things on those lists is insurance planning.

Unfortunately, the insurance business is complicated and with potential mistakes lurking—like rate increases that come as a surprise, lapses in updating beneficiaries on the policies and missteps with estate taxes—clients need help.

And many clients are underinsured. According to data from the insurance industry association LIMRA, more than 50 percent of consumers ages 25 to 64 are without life insurance coverage. About 44 percent of those have a real need for it, says Kellan Finley, the managing director of the insurance consultancy firm Insurance Decisions.

“The gap between service models can be maddening for clients,” Finley says in an op-ed she wrote for Financial Advisor IQ. “It also elevates the risks that clients face when preparing for retirement or a serious life event.”

Life Insurance at Any Age
It’s time for the youngsters to start thinking ahead also.

Here’s a tip courtesy of Yaron Ben-Zvi, the co-founder and CEO of Haven Life, an online insurance provider: direct your young millennial clients to get life insurance. Sure he may be biased, but he brings up a good point: millennials have debt of all kinds from student loans, mortgages and car loans. If they co-signed for any of those with a partner or a parent, those folks will be saddled with a heavy burden should the millennial client die.The Journal’s September issue will be all about the next generation of planners and clients, and the issue (look out for the link on our Twitter page come September) is chock full of tips for working with millennial clients.

“Though death and debt aren’t typically dinner table conversations, it’s important to understand your financial obligations and how they impact your family,” Ben-Zvi said in a recent interview with Cheat Sheet.

Also, he says, millennials are probably healthy, which could lead to lower premiums. And he’s advocating for planners in the piece, noting that the process is complicated and the choices are many (think term life, whole life, permanent life, etc.)

“You can also go through an agent or a financial planner if you’d like someone to take you through the process,” he advises.

What Can Planners Do?
But if you’re not into the unsexy insurance—or you don’t have the resources for it—then you can partner with an insurance-consultancy firm or work with an objective insurance professional, Finley advises.

Finley notes that advisers should understand the ongoing service that term-life and long-term care policies need and be prepared to be updated with them. She advises to use a CRM system or an Excel spreadsheet to keep tabs of the policies.

“Whether it’s underwriting or explaining insurance jargon, those advisers who use unbiased resources can offload unprofitable work while helping secure the client’s future well-being,” she writes.

HeadshotAna Trujillo
Associate Editor
Journal of Financial Planning
Denver, Colo.

Editor’s Note: For an FPA webinar on how your high-net worth clients may be overpaying to be underinsured, click here. Conducted by Annmarie Camp, senior vice president of national sales and distribution leader of ACE Private Risk Services, and David Spencer, senior vice president of premier client services at ACE Private Risk Services, the webinar offers 1 CFP CE credit.

Also, the August issue of the Journal has more pertinent information on insurance, including life insurance and long-term care insurance. To download the digital edition, click here