To read the complete blog article which provides details and sample illustrations supporting the content in the video above, go here.
What follows is an abbreviated version of the blog content:
Sometimes it seems there are only two kinds of prospects for long-term care insurance: Those who can't afford it and more affluent candidates who can -- but resist spending the money thinking, "I'll just self-insure it."
Next time you run across one of the latter, ask this question: "Would you like to know mathematically whether self-insuring is a valid option?" Most affluent people will want to hear what you have to say. For example:
Assumed Client Data
Clients: Age 65 and 60
Net Worth: $3.5 million
Desired After Tax Retirement Cash Flow: $100,000 indexed at 3.00%
- Assume a claim occurs in 8 years for one of the insureds that lasts for 6 years, after which death occurs.
- Assume the total benefits for the claim on a monthly basis will be $6,000 in today's dollars -- and medical inflation averages 5% a year.
- Assume the annual premium for a Long-Term Care policy with an inflation rider covering both individuals is $12,000 -- reducing to $6,000 during the claim period.
- Assume the inflation rider increases total monthly benefits by 5% (compounded) a year.
- Assume retirement cash flow needs decline by 25% during and after the claim period.
Let's compare three scenarios:
- No coverage purchased and no claim costs assumed.
- No coverage purchased and claim costs paid via withdrawals from Net Worth.
- Coverage purchased and claim costs paid by the insurance company.
Hold on to your hats. Here are the results using InsMark's Wealthy and Wise® software system.
Why is buying the LTC insurance the most efficient option?
Remember the assumption above where "retirement cash flow needs decline by 25% during and after the claim period". Each client's situation will require different assumptions, but in this case, it's simple mathematics -- the present value of the reduction in retirement cash flow more than offsets the present value of the cost of the premiums for the Long-Term Care policy.
This logic also makes self-insuring slightly more efficient than doing nothing -- but the insurance option is the winning strategy by a large margin.
Go forth and be productive . . . but if you aren't using Wealthy and Wise, you don't want to run into a competitor who is.
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