The Finance Of Longevity

Insuring Against The Ravages Of Time… and Retirement

Three senior insurance products that can preserve wealth

by Tom Schueth

Mr. Schueth is Co-Founder and Principal of Premier Marketing and leads the day-to-day operations of Premier. He is Co-Founder and Managing Partner for Integrity Marketing Group and serves on its Board of Directors.

Making money is one challenge, keeping it is another – and there is no denying that the older you are, the harder it is to recover from a financial set-back. This is especially true after retirement age, when even the best-planned retirements can be ravaged by unexpected financial events.

That’s why it’s so important to advise clients who have amassed some wealth about how to successfully preserve it. Encouraging them to buy insurance as a senior is probably one of the best bits of advice you can give to them. Many people are underinsured, or not insured at all for some of life’s catastrophes that have a higher likelihood as they age. When people enter their retirement years, they usually need key protections and it’s often the exact time they shy away from insurance and think about self-funding.

Insurance Provides Wealth Preservation by Transferring the Risk

It makes sense that those who have money in the bank have had self-control around spending. It’s no wonder they consider going it alone, saving on insurance premiums and self-funding if something happens. This approach comes with quite a risk.

Instead of your client taking a risk with that nest egg, advise them to transfer that risk to an insurance company. Balancing the cost of the insurance with the peace of mind it offers gives people a sense of preparedness and control when something unexpected occurs. It means they can make plans for their life and not have to worry that in a split second, their savings will be eaten up by a surprise catastrophe.

It matters less whether someone buys the Platinum-level plan or the bronze-level plan, than that they are guided into what they can afford that will help them be prepared.

We know the best time to plan is before anything bad happens. Taking a proactive approach and talking with your clients far in advance of any anticipated need about senior insurance can be vital for protecting their wealth. The three key kinds of senior insurance that all seniors should consider preserving their wealth include long-term care, a funeral trust and a Medicare Supplement plan.

Advising Clients to Consider Long Term Care

The potential cost of long term care is dizzying. The annual average cost of a private nursing home room is about $100,000 and a home-health aide can cost north of $46,000 a year. According to the US Department of Health and Human Services (USDHHS), most Americans underestimate the risk of developing a disability and needing long term services and support (LTSS), but about half (52%) of Americans turning 65 will develop a disability serious enough to require LTSS, and one in seven of those adults will have a disability for more than five years.

The USDHHS also notes that on average, an American turning 65 today will incur nearly $140,000 in future LTSS costs, and about 20 percent of them will have to cover at least $100,000 of the cost for future LTSS out-of-pocket. This can be devastating to a person’s wealth and their life plan. Transferring the risk to an insurance company will protect not just their money but also their future.

Moreover, the burden of long term care isn’t just a financial consideration, it can be a health issue for many. The worry over life’s uncertainties can weigh heavy on the spouse and family who may be responsible for helping with care and support. The challenge to presenting the advice to purchase long term care to your client – even though they could use the coverage – is that the cost of long term care insurance can be relatively high and buying it past age 50 or 55 drives the costs even higher. It’s the primary reason less than 10 percent of Americans currently have long term care insurance policies in force.

How do you broach the subject with clients who’ve been exposed to these challenges? Share the facts (like those above), be patient and explain that while they may pride themselves on their ability to self-fund costs, it isn’t the best plan for long term care, especially if you have a spouse, children or a loved one who will be left with the burden of providing care.
Clients need to be guided. They must determine how much they can realistically rely on their inner-circle to help out if needed and be guided to self-fund according to their ability – but they also must know that investing in a layer of long term care insurance that can fill in the gaps and protect their wealth is a good idea they may not want to overlook.

Moreover, the burden of long term care isn’t just a financial consideration, it can be a health issue for many. The worry over life’s uncertainties can weigh heavy on the spouse and family who may be responsible for helping with care and support

They need to understand that there are many different levels of insurance, not one solution. Learning about the varying types of monthly premiums and benefit levels can take some of the fear out of the process. An engaged client is sure to find the plan that makes the most sense; one that is affordable while protecting them from the high costs synonymous with care.

Funeral Trusts Maintain Wealth by Earmarking Specific Funds for Funeral or Burial Services

A funeral trust is another good option for senior clients to complete the estate planning puzzle. This plan that allows them to set aside funeral expenses in advance into a life insurance policy, earn a growth factor on their dollars to keep up with the rising costs of funeral and burial services and have those funds pay out to the funeral home. The payment is often made the next business day and without a death certificate in most cases. Any remaining funds can be assigned to a beneficiary, all with tax free dollars.

Individuals with large estates can often have funds locked down upon death causing the family to pay out of pocket for the funeral. When that bill is left upon the shoulders of a loved one, a client’s legacy is not beginning in the black, but in the red. A funeral trust can also spare the surviving family members a lot of difficult and expensive decisions at their time of grief. A funeral trust will let your clients maintain control over their expenses and their own end-of-life burial arrangements and preserve their wealth. Clients can simply fund the trust with the insurance company not charging for irrevocable trust or admin fees. Because the funds are in a life insurance policy favorable tax treatment is a major advantage.

Medicare Supplement is a Must for Protecting Wealth

Medicare is a valuable benefit but covers only about 60 percent of the total health-care costs for Americans age 65 plus. The added expense – including deductibles, copays, coinsurance and payments for services that are not-covered – can add up to a major personal expense – and there is no limit for annual or lifetime out-of-pocket expenditures with Medicare.
Advising clients to purchase a Medicare Supplement plan, offered by private insurance companies and regulated by Medicare (much of the funding comes from the federal government), can help them cover those out-of-pocket expenses and thus avoid unexpected surprises related to high medical bills. Medicare Supplement fills in the gaps of regular Medicare and provides predictability for your client’s health-care spending during retirement, lessening the fiscal burden of out-of-pocket expenses related to healthcare.

Medicare Supplement plans may also offer added benefits not included with original Medicare such as glasses, dental care and/or wellness programs. These are things that people need and would have to with their personal funds. While your client may still have out-of-pocket deductibles, copays, and coinsurance with Medicare Supplement, all Medicare Supplement plans have a maximum annual out-of-pocket limit, making medical expenses predictable to a certain level.

The benefits of purchasing a Medicare Supplement plan with its expansion of coverage – and thus its health and wealth protection – far outweighs the additional cost of the coverage. This is one of the most important senior insurance products vital to people’s long-term success. Having a good Medicare Supplement plan means seniors can get the medical care they need in a timely, affordable way.

Insurance Strategy is a Life Strategy

In your commitment to helping clients secure and navigate their best possible wealth preservation plan, don’t let them overlook the three types of senior insurance outlined above. Clients should understand that transferring risk to the insurance companies is a fundamental strategy that is part of their senior years, not an extravagant addition.
While there is no one-size-fits-all approach, the key is to work with them, go over each of the options proactively, and make informed decisions appropriate for each client, so they are protected against life’s costly surprises and inevitabilities.◊