Insurance Needs Within A Special Needs Practice: Long-Term Care Insurance ___________

2 The agenda… Part 1: The discussion that can no longer be put off Part 2: Consequences motivate people, not risk Part 3: How a plan can mitigate consequences and what will pay for that plan Part 5: What long-term care insurance really does, it may surprise you

To give you compelling reasons why a plan for long-term care must be integrated into every special needs plan

4 A note…  The targeted market for this discussion are those in their 50’s through late 60’s…  They are beginning to see their friends get sick or even die  Many are taking care of their parents  Retirement is in the near, not far, future which means the bank is closing  And they already realize that their financial commitments will continue well into retirement and past their death(s)

5 Targeted demographic  Clients who have a child with special needs, who are also financially successful  Successful clients have upgraded lifestyles which include many financial commitments, in addition to providing for their child  They want to make sure that their family’s lifestyle continues should they Die during working years Become disabled during working years

Part 1 The discussion that can no longer be put off

7  Failure to talk about the consequences of requiring care over a period of years, risks the emotional and physical wellbeing of your client’s family  It also puts into play their retirement portfolio which is allocated for just that – retirement  Paying for care likely will force a reallocation of income and assets, severely compromising the financial viability of those who rely on it

Consequences to your client’s family

9  Providing care to chronically ill people makes healthy people chronically ill. It’s the nature of long- term care An inability to perform ADL’s A cognitive impairment so severe that the person is no longer safe  The nature of providing care often tears families apart  Put simply, if your client ever needs care his life won’t end…

Someone else’s life will end

Consequences to their retirement portfolio

12  Retirement assets are divided into two portfolios: Income Investments  The family lives on income generated from the income portfolio, not by liquidating investments  Generally lifestyle expenses equal income  Reallocating income to pay for care has two unintended consequences…

13 1.It immediately impacts their lifestyle which always includes financial commitments, one of which is providing for a child who is disabled. This may include paying for a life insurance policy to fund a SNT 2.If the illness lasts long enough, it leads to an unintended invasion of the investment portfolio  Causing unnecessary taxes  Jeopardizing the financial viability of a surviving spouse and a disabled child who must depend on an inheritance

14 What if you…  Got a call from your best client’s daughter telling you…  “My dad had a stroke and we are worried that if he needs long-term care there may not be enough money. Our mom is beside herself”  What would you want to say to her…

15  “That’s awful.” Or…  “I’ll take care of everything”

Developing a plan to mitigate consequences and what will pay for that plan Part 2

17 The plan is straightforward…  For your client to Maintain their independence in the community, without placing the emotional and physical wellbeing of his family in jeopardy Preserve income stream so it can continue to support their lifestyle and keep financial promises

18 What will pay for that plan…  Your client has two funds within his retirement portfolio… Income funds Investment funds

19 As mentioned…  Your client does not support his lifestyle by spending down his investment fund, but rather by drawing down his income fund over a set period of years  That income comes from qualified assets, annuities, etc. and is supplemented by social security and possibly, a pension  Lifestyle includes keeping financial promises to his family

The portfolio is protected during working years by life and other forms of insurance…

21 Asset & Income Asset & Income Portfolio Protection Car  Home  Family & Kids  Wealth (estate issues)  Salary  Retirement Portfolio  Auto Insurance Homeowners Life & Health Insurance More Life Insurance DI Insurance ?

What has your client allocated from their income to pay for long-term care?

23 When will the family panic? A.When they start to divert the income stream to pay for care? B.When they start to invade the investment assets? C.When they get the diagnosis? Answer: C

24  They don’t know how long the illness will last…  And how much it will cost  Do you think the family believes that $2,000,000 is enough?

25  “Peter, you understand that your retirement portfolio will generate income to support your lifestyle and keep promises to your family and community” I understand  “I can’t assure you that if you need care over a period of years, the income stream will be sufficient to support your lifestyle, which includes providing for your disabled child and pay for care at the same time”

Not discussing a plan for long-term care and what will pay for it, forces the client to rely on a federal or state program or pay out of pocket

27  Medicare is health insurance. It pays nothing for custodial care over a period of time  The VA is health insurance. If it was going to pay for custodial care, why do they recommend that military personnel purchase LTCi?

28 Medicaid…  It pays almost exclusively for custodial care in a skilled nursing home, the one place your client doesn’t want to go to and is not likely to need  Medicaid is not free. Gifting qualified funds create an immediate tax. Low cost based assets create a future tax  Once on Medicaid, the spouse at home loses almost all of his or her monthly income

A different take on long-term care insurance Part 5

30 Why do you think people buy the product?  Choice of care and where it is given? No  Preserve assets? No  So they are not a burden to their family? No again  Pass money on to their children? No

They buy long-term care insurance (LTCi) for the same reason they purchase life insurance…

They love their family

“My client has enough to pay for his care”

34 My client has…  $1,000,000. It’s really… $50,000 per year  $1,500,000. It’s really… 75,000 per year  $2,000,000. It’s really… $100,000 per year  That’s assuming every nickel is in the income portfolio

35 Let’s look at where the money goes  Helping a child who did not make the best decisions  Help pay for their grandchildren’s education  Supporting a summer home  Tithing  Membership in a golf club  Providing for their special needs child

36  If their Income is $100,000…  What are their expenses?

37 A note about expenses  Non-discretionary expenses = living expenses  Discretionary expenses = lifestyle  Query: Does your client differentiate between the two?  What does your client do when it comes to paying for long-term care?

38  Since nothing has been allocated to pay for care, EVERYTHING has been allocated  Income from their portfolio will have to be reallocated  At a minimum, lifestyle is affected. If the illness continues, there is the likelihood of an unintended invasion of principal  In turn, this may compromise the financial viability of the surviving spouse and their disabled child

“Maybe. But if my client needs care over a period of years, he won’t have a lifestyle. The money he saves can be used to pay for his care”

From the day he got married and had children, it stopped being his lifestyle

Here’s what I believe your client wants to hear…

Peter, I want to make sure that if you or Claire ever need care, the family will be able to continue to enjoy a lifestyle both of you worked so hard for

43  Peter, your retirement portfolio will generate income to support your lifestyle and keep promises to your family and community after you retire. Of course.  Here’s the problem… Should you need care over a period of years, the income stream may not be sufficient to support your lifestyle, provide for your child’s special needs, and pay for care at the same time. What do you mean?

What about the client who can “easily pay for both?”

Very wealthy people buy LTCi for the same reason they purchase life insurance…

46 They assess consequences, not risk  The more severe the consequences of an event are to your client’s family, the less the risk of the event happening to him has to be  They understand, likely from a prior experience, that their needing care over a period of years could have severe consequences to the people they love. They also know that the cost of care will likely be substantial  Although they still believe that they will not need care, the consequences to their family make the purchase of LTCi a reasonable and necessary expense

In the final analysis…

48  LTCi doesn’t protect individuals…  LTCi protects families  LTCi allows your client’s spouse to maintain her relationship with him as a spouse supervising care, not as a spouse providing care  LTCi allows your client’s children to maintain their relationship with him as children supervising care not as children providing care

49  LTCi doesn’t protects assets…  LTCi protects income stream  LTCi allows the income portfolio to execute for the purpose it was intended; supporting lifestyle and keeping financial promises  By protecting income, LTCi protects the investment portfolio, thereby securing the financial viability of a surviving spouse and their special needs child