|
| |
Who benefits using the model?
The quick answer: Both traditional and high net
worth clients and their advisors benefit.
Anyone wanting a comprehensive assessment of the LTC
financial risk facing themselves, their clients, and the public at large benefit
from using the model. For
example,
 |
Fee Based Planners & Planning Firms |
|
Attorneys or CPAs in Estate, Business, Personal or Trust Planning |
|
Financial Institutions With Planning or Insurance Relationships |
|
Executive and Employee Benefit Administrators and Consultants |
|
LTC Insurance Companies, Agents, Brokers, Producer Organizations |
|
Consumers & Trusted Personal Advisors |
|
Consumer Advocates, Media, others interested in the LTC issue |
When new information and insights first become available it usually takes time for accepted practices
to change. We believe LTC is an example where current media messages to
the affluent and
some professional practices are obsolete.
The practice of ignoring the LTC issue or advising self insurance, without
giving a client the benefit of a professional analysis, will likely have
unintended consequences.
Prevailing Practice - High Net Worth Clients
Estate planning and fee-based comprehensive financial planning implies
that clients will receive analysis and leadership regarding substantial financial
risks and opportunities. The planning process includes time and effort
finding ways to reduce estate erosion due to taxes, non-professional
investment management and other significant risks. Long-term care, which is generally
an insurable, high probability and potentially high cost risk, is often
overlooked.
Risk Mitigation - You, Your Client, Your Company
High net-worth clients can afford to pay potential long-term care costs
from personal assets or from other income. For this reason many financial,
legal, tax, and other advisors skip this issue or recommend self-insurance
to their financially affluent clients. But proper analysis using the
Long-Term Care Economic Impact Planning Model
may provide high net-worth clients new insights leading to a different
decision. Important questions
must be asked.
Important Questions for Advisors/Consultants
|
Is self-insurance the correct action or recommendation? |
|
What is the real financial risk to the client? |
|
What is the financial and professional risk to the advisor? |
|
Will a future legal atmosphere develop that encourages heirs to seek
recovery for substantial avoidable losses? |
|
What is the probability of your client needing care? For how long? At
what cost? |
|
To determine the total exposure to estate values should not the
reduction in appreciation of investment capital and other advanced planning
variables be considered before a decision is reached to self insure? |
|
Should the advisor and the client give serious thought to sharing
some of the
LTC risk
with an insurance company? |
High Net Worth Estate Planning Scenario
Client Profile
 | A planning client concerned about asset erosion due to estate taxes & other manageable
situations. |
| Client has substantial resources and has not been provided a
comprehensive analysis of the potential economics of LTC. |
| Client is an individual who will demand superior quality care. |
| If care is needed, 24-hour home care or a superior quality facility will be
selected. |
| Client knows inflation in health care, including long term care, exceeds the CPI. |
| Client knows Medicare, HMOs, and other personal or group health insurance
plans provide minimal to zero custodial long term care coverage. |
Client Data
| Mr. and Mrs. Client are ages 55 and 50, both in excellent health. |
Planning Assumptions
Care Data
- Scenario A
| Mr. Client will need care for 6 years. |
| Mrs. Client will never need care. |
| Mrs. Client will live entire 30 year plan period or beyond. |
| Current cost of 24-hour home care is $300 per day or more for quality
care expected |
| 5% inflation increases the cost of care compounded annually. |
| The need of care will start at the beginning of the 16th policy year and
continue to the end of Mr. Client's life at the end of plan year 21. |
| Mrs. Client will carry LTC insurance coverage throughout her lifetime.
Mr. Clients premium will stop when he starts receiving care. |
Insurance Benefit Design
- Scenario A
| Unlimited years benefit |
| $300 daily benefit |
| 5% compound inflation |
| 30 day elimination or deductible period |
| $6500 ($3500/$3000) combined initial annual premium |
Advanced Planning Assumptions -
Scenario A
| 5% loss of investment opportunity on care costs and premium. |
| 5% asset liquidation costs, 5% care cost tax factors, 5% premium tax
deductions/credits and premium price change of 10% in year 15. |
Bottom line without insurance
$3.1 Million Estate Erosion
See the Tour section for input and report pages
for another scenario.
|
