Long-term Care

Taking Long-term Care Funding from Scary to Solved

7/28/2020

"Our world is full of complicated information. And the insurance industry is notorious for creating products that can be hard to understand. I’m sure we’ve all had clients suffer from “analysis paralysis” when trying to decide between multiple solutions. But it doesn’t have to be scary."

As advisors, we experience success when we can break down the complexities into a strong solution that the client can understand. And believe it or not, it is possible to simplify the way we help our clients fund a long-term care plan.

Once you’ve talked with your clients about long-term care and helped them understand the value of a written plan, it’s easy to stall out. But a written plan is only half the story. If they decide to use an insurance strategy to fund the plan, they will need our expertise to figure out the best way to proceed.

To keep it simple, there are four main categories to consider when identifying the funding. Knowing your client’s complete financial picture will guide you when deciding which funding option to recommend. And once you’ve got that figured out, your Palladium Group team is perfectly positioned to help create an individual solution for each client. The key is to choose a funding method that won’t force the client to sacrifice lifestyle or other financial goals.

Let’s look at each option and the type of client it is most likely to fit best.

Cash Flow

Cash flow is actually more than just cash. This is a good option for clients at or nearing retirement. They might have RMDs they don’t need, a strong pension, income from a rental property, social security, or other retirement income. If the client has enough cash flow to fund ongoing premiums without hurting their lifestyle, this can be a straightforward, easy-to-explain option.

Idle Assets

This option is ideal for clients with CDs, money market accounts, or cash value life insurance that doesn’t meet their needs anymore. Idle assets, by definition, are assets that aren’t working for the client. Think of them as gasoline still sitting in the pump. Until you put it in the tank, it’s not doing any good. Your clients can use idle assets to fuel their LTC plan.

Qualified Accounts

Qualified accounts are things like IRAs or 401(k) and 403(b) accounts. They are plans that the client paid into with tax-deferred dollars. Clients might be afraid to use these funds because they’re scared of the taxes that will be owed when they do. Fortunately, there are options to minimize the tax hit when these accounts are used to fund a long-term care product. So it solves two issues—what to do with the qualified money and how to pay for long-term care. Win-win.

Non-qualified Accounts

Because non-qualified accounts are funded with post-tax dollars, there is more flexibility and less concern over taxes with these assets. These are things like non-qualified annuities and the cash value from life insurance. They can be exchanged for LTC products without triggering a taxable event.

 

As advisors, we’re juggling lots of moving parts to create a solid financial plan. The upside is that by understanding the complete picture we’re in the perfect position to take assets from vehicles that don’t meet the client’s needs and use them to fund a long-term care plan. Because without a solid plan for long-term care, the entire retirement plan is at risk. And that’s something to be afraid of.

 

Written by Chad Eyrich, VP, LTC & Linked Benefit Sales, Ash Brokerage