Wealthy prospects want to hear about but aren't interested in long-term care insurance, according to prevailing wisdom. But does that claim hold up? We asked several advisors and industry leaders how they use LTCI to reach high-net-worth clients.
Irrevocable life insurance trusts are a proven technique for generating tax-advantaged liquidity for estates. Tracy Shaw, MassMutual's assistant vice-president of long-term care insurance marketing, suggests following that model for LTCI with insurers like MassMutual that allow third-party ownership of the contract.
The trust owns the LTCI policy, pays the premiums and is the recipient of any benefits paid under the contract. The insured gifts the policy premiums to the trust; structured properly, this arrangement can remove the gifted premiums from the insured's estate. If the insured files a claim, the policy benefits are paid to the trust as the policy's owner.
The trustee can then pay for the insured's cost of long-term care or the insured can pay those costs out of pocket--further reducing his or her estate--and allow the received benefits to accumulate within the trust.
Control is important for wealthy clients, says Terry Sandvold, a financial professional with The Prudential Insurance Company of America in St. Louis Park, Minn. Consequently, when he discusses LTCI with these clients, he stresses how the insurance gives them greater control of their financial futures and enhances wealth preservation.
It's essentially risk analysis, a concept that wealthier clients understand. "In almost all cases, they end up buying the 5 percent compounded cost of living, which is the best cost of living feature you can buy," he says. If they don't purchase a lifetime benefit, they usually select shared care, in Sandvold's experience. "That will increase the probability of using more of the benefit," he notes. "They like to have the odds on their side and that's one way they can see shared care is a very good benefit for them."
Integration with Wealth Management
Scott Wirtz, CLTC with Eslick Financial Group in Waterloo, Iowa, is a rare breed: He's an LTCI expert within a wealth management firm. Many wealth managers refer their clients to outside LTCI experts, but in Wirtz's case, the referrals come from his colleagues. "Our firm has done a really good job of positioning me as the long-term care planning go-to person for our local advisor community," says Wirtz.
The LTCI business also builds prospects' and new clients' interest in the firm's other services. Wirtz attributes that interest to an emphasis on creating a learning environment instead of pressing for quick sales. "I hear so much in the long-term care industry about one-interview sales," he says. "I've never experienced that.
Mine are generally three meetings long--I think it's the process that really enamors people to us. They get to see the process on the long-term care side and know that we have those same processes in place on our wealth management and insurance practices, as well."
Getting More Mileage with Hybrids
Wealthy clients often hold large cash balances. But with interest rates so low, they're more likely to consider options for leveraging their liquidity. Jonathan Schwartz, CLTC, owner of got LTC? LLC in Westwood, N.J., says that linked-life LTCI products appeal to prospects in a low-rate environment. "If you never need the long-term care, then there's a death benefit going to a named beneficiary tax-free like any other life insurance product," he says.
"In today's economic environment, the reality is if a person has got money sitting in the bank or money market or a CD, they're earning less than 1 percent. For a typical 65-year-old female, the leverage is 2 to 1 on the [contract's] death benefit, so where else is the client going to get a 100 percent return on their money?"
Go Through the Gatekeepers
Referrals from wealthy prospects' financial advisors have always been one of the best sources for new LTCI business. Kerry Peabody, CSA, CLTC, with Clark Insurance in Portland, Maine, gets most of his LTCI business from other financial advisors. "The harder sale is the advisor because once the advisor sits down and encourages the client that this is something that they need to be educated about, half the battle is done with the client," he says.
Peabody often focuses on how LTC expenses can affect the healthy spouse. "You have to demonstrate, even for a high-net-worth client, how quickly they can have a significant impact," he says. "Most of my clients are couples. In my opinion, you're not going to have much success selling long-term care insurance to a wealthy, single male because frankly, he doesn't care and, it's never going to happen to him. If you're talking to a husband and wife, you need to make them understand how a long-term care need will impact a healthy spouse."
Understand Family Dynamics
Understanding family dynamics and the role LTCI can play in preserving wealth helps Marlene Lund, CLTC, CSA, with Lund Insurance Agency Inc. in Omaha, Neb., work with wealthy clients. "In the good old days people used to say if you have X amount of dollars, you don't need to look at long-term care," says Lund. "I don't look at that as truth anymore.
I have clients who are millionaires who have a policy and the reason is that most wealthy people have their money already earmarked, whether it's a legacy for family, for community, whatever. A long-term care crisis can put a huge dent into that legacy."
"Wealthy kids like to stay wealthy, and when they start to see that mom or dad is depleting $150,000 to $200,000 a year out of the portfolio, it starts to make some kids pretty nervous," Lund points out. LTCI removes the cost issue from the family discussion if the care is needed and allows the family to focus solely on the insured's care instead of their assets.