Ownership of life insurance remains at all-time lows. With a few exceptions, it has continued to decline over the last couple of generations. This has left a lot of Americans without life insurance by choice. However, a subset of those people are truly uninsured. They may have never qualified or, like many Americans, they waited until a health concern bubbled up, which made the coverage unaffordable.
Too often, I see planners tell their clients they will have to “self-insure” their future. That translates to becoming more aggressive in their allocation to grow their funds faster. And, keeping more assets in brokerage accounts and wrap accounts instead of shifting their risk. In reality, there are other ways to shift this risk.
As I’ve mentioned before, long-term care is more of a cash flow issue than an asset issue. I hear many planners looking to protect assets instead of creating additional cash flow to pay for the care. Annuities can provide a guaranteed income and many riders accelerate the payment for those confined to a facility or needing home health care. In some cases, the income doubles during the time of need.
Asset-based long-term care products have become a popular solution because clients can maintain control over their account and balance sheet. These products shift the account value to a leveraged situation. You have to ask yourself …
Who wouldn’t want to receive two to three times the value?
To make this solution even more attractive, tax advantages exist due to the Pension Protection Act. Now, some underwriting exists, but this solution offers the best use of a deductible – your account value – followed by the leverage provided by an insurance company.
Many life insurance companies offer enhanced riders that provide part of the death benefit if you qualify for two of the six activities of daily living (ADL). In many cases, these companies underwrite toward the mortality risk and not so much of the morbidity risk. Again, underwriting exists, but it can help the underinsured capture more risk mitigation.
We have to look at alternatives for our underinsured and uninsurable clients. Simply keeping assets under management presents a conflict of interest by not looking at other risk mitigation tools in the planning process. Take time to serve your clients and evaluate how life insurance and annuities can fit into the income distribution planning strategy.
Look at your clients who can’t afford traditional insurance coverage or can’t qualify for the coverage they want. Alternatives exist where the risk of long-term care can be shifted, in part, to an insurer instead of remaining with the assets under management.
Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”
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