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Friday, June 5, 2009

LTC Insurance For The Affluent

Private Wealth magazine

By David Bidwell , Peter Gelbwaks - 03/5/2009

… Preparing for the possibility of a long-term illness should be an important component of every [individual’s] financial plan, including the affluent. …

There are an increasing number of alternative products for long-term care, including life insurance or annuities with long-term care riders. These products, however, usually do not deliver the robust benefits or tax advantages of a traditional long-term care insurance policy.

Solutions For The Affluent

…Wealthy clients … are typically open to the idea of using LTC insurance as a way to transfer the financial risk and responsibility for hands-on health care. The insurance also ensures that these responsibilities won’t fall into the lap of family members and that policyholders will have access to top-notch health care providers.

Once the math is done, affluent clients usually recognize that LTC insurance makes sense. This is particularly true of business owners, who can reap many advantages from long-term care coverage. These benefits include the ability to provide enriched employee benefits packages, which can improve worker productivity and provide for better retirement planning.

Business owners can also reap tax advantages from LTC insurance, including the ability to deduct premiums as a business expense, receive state tax credits or deductions or exclude premiums from an employee’s gross income…

…Most affluent [individuals] … want the best care available and they want it delivered in their homes. This type of service—it typically includes 24-hour home care in two shifts per day—can cost considerably more than conventional coverage that calls for nursing home care.

Doing The Math

Generally speaking, regardless of the age of the client or the plan design, it will only take three to 18 months of receiving benefits from an LTC insurance policy to recoup an entire lifetime of premiums.

For example, a 65-year-old married healthy person buys coverage with benefits of $200 a day or roughly $6,000 a month. We’ve assumed a 20-year life expectancy, so $3,335 per year in premiums would total $66,700, assuming no claims are paid before age 85. The $6,000 benefit doubles with a simple 5% inflation rider built into the plan, which means the policy pays $12,000 per month at claim time. After six months, the benefits will exceed the total premiums paid…

Flexible payment options are very attractive in the affluent market as they enable the policyholder to pay the full cost of the premiums within a specified time period. … The first is “10-pay” in which the premiums are paid in ten individual payments. The second is a “paid-up at age 65” option that enables those under age 55 to pay all premiums before turning 65, to avoid payments during their retirement years. Among the advantages of these options is that they expose [individuals]to less risk of a future rate increase. They are also attractive to business owners, allowing them to provide a paid-up LTC insurance policy before an executive or employee retires. …

A Planning Tool

Given the availability and flexibility of today’s products, it’s hard to argue against making LTC insurance a part of an affluent [individual’s] financial plan. Take the case of a wealthy client with more than $50 million in assets who purchased LTC insurance for himself and his spouse. He insures a $10 million home, a $2 million boat, $1 million in jewelry, $1 million in art and $500,000 in cars. … In fact, out of all his insurance policies, he believes he is most likely to use the benefits of his LTC policy…

Peter Gelbwaks is chairman of Gelbwaks Insurance Services Inc. of Plantation, Fla., and immediate past chairman of the National LTC Network, the largest LTC insurance marketing firm in the nation. He can be reached at peter@gelbwaks.com or at 800-826-1686.

David Bidwell is the southeast regional director for John Hancock’s LTC insurance division. He is a 16-year veteran of the long-term care insurance industry. He can be reached at dbidwell@jhancock.com.