A very successful financial planner in the San Diego area, that we have the pleasure of working with, starts the conversation about long-term care insurance with his clients with the following question; which number would bankrupt you first? (A) $1.23 million or (B) $3,000 per year? The answer that he gets nearly 100% of the time is? A! Now there?s a surprise. Greg then goes onto explaining the metrics of this seemingly obvious choice:
1. You are now age 57.
2. Currently the daily cost of long-term care in our area is $210/day or about $75,000 per year.
3. The rate of inflation in this sector of the economy is historically more than 5% and is likely to continue due to the increasing shortage of caregivers.
4. This means that when you do need care; say around age 84, the daily cost will be more than $784 per day or in excess of $286,000 per year.
5. The typical long-term care event is around four years which means that you will need more than $1.23 million dollars to pay for your care.
6. You can solve this problem for about $3,000 per year. Which makes more sense to you?
Greg uses our Money Pool illustration software. In less than five minutes he identifies the risk and explains the options to his clients. He has a very high closing ratio when it comes to long-term care insurance because he tells the story in a simple, straight forward, financial, and matter of fact manner. If the clients don?t want long-term care insurance then Greg has them sign the Acknowledgment of Review report (included in the Money Pool software) that says:
I acknowledge that this report has been explained to me. I understand I can choose to; (1) create a LTC expense account paid for by an insurance company, or (2) pay for any long-term care myself,
I (circle one) ELECT TO / ELECT NOT TO apply for long-term care coverage at this time. I (circle one)
WOULD LIKE / WOULD NOT LIKE a follow-up no later than ____________ fill in date, if applicable).
Signed ______________________________________ Dated ________________
If you think that the financial assumptions that Greg is using are too aggressive, allow me to shed some light on a few facts that illustrate how understated this approach is:
? Many times this presentation is made to a husband and wife. For couples that make it into their 80?s it is a 70% chance that one of them will experience the typical long-term care event described.
? Yes, this means that the premium would be $6,000 per year for this couple but the ?LTC Expense Account? established by the insurance company is now more than $2.6 million dollars at age 84. This is a bargain when one or both suffer a long-term care event.
? Maybe this client or couple has plans to have assets sufficient enough to have their own ?LTC Expense Account?. How would the couple get to $2.6 million dollars?
o At a 6% after tax rate of return on investments they would need to set aside:
? On a one-time basis more than $440,000 dollars; or
? On an annual basis more than $31,000 per year and hope that they have the money and time to complete the plan.
? These investment dollars would be after tax which means they would need to earn significantly more just to have this money available for investment.
Here?s another point that many people fail to take into consideration when they think creating their own long-term care account is the way to go; sometimes when the money is needed, they or the folks caring for them and helping with their finances are forced to take a significant discount on the asset being liquidated. Think about how hard it is to sell a home today. Therefore while the wealthiest of people may think that they don?t need long-term care insurance because they have the money to pay for it on their own, the cost of getting there and the expense of getting to the money when they need is very high indeed.
Naturally, all people will not buy or do not think that long-term care insurance makes sense under any circumstances. But, as risk managers we have the obligation to lay out the facts. For our own sake, we ought to be documenting the conversation about this issue with our clients to protect ourselves in the future from litigious family members who are saddled with caring for mom or dad.
Learn more about our Money Pool software by logging onto the GoToPro website or contact your BJFIM/Paradigm marketing representative.