[This article looks at a new way of demonstrating the need for Long-Term Care ("LTC") coverage, comparing the various options of doing nothing, active self-insuring, and purchasing Long-Term Care insurance.]

Background: Our Case Study involves John and Fran Sandor, ages 65 and 60. Their net worth is slightly in excess of $1,300,000. (You can review the details of their financial picture in Figure 1 .)

John carries $150,000 of life insurance payable to Fran, so their current estate totals just under $1.5 million.

John and Fran want $50,000 a year in spendable after tax retirement income increasing by 3% a year as an inflation offset.

Their financial adviser has recommend they purchase LTC coverage with a premium of $2,000 a year; however, John and Fran are concerned about incurring the premium cost and believe their estate has adequate funds to self-insure this risk.

Note: Hypothetical long-term care costs as well as LTC premiums are inflated at 5% a year to reflect the effect of inflation.

Figure 2

If the Sandors believe that the severe risk associated with the Phase 2 drop in Net Worth is more than they wish to assume, then the slight reduction of Net Worth in Phase 3 is probably a compelling alternative. The obvious solution is to purchase the LTC policy.

Here is your power question that should influence clients to provide you with the data needed for the analysis -- "Would you like to see the financial impact of not purchasing Long-Term Care coverage?" Almost all clients will respond favorably to this question, and only InsGift 4.0 can illustrate this analysis in the context of the overall estate.

This approach offers a new way to evaluate LTC, and it usually is an effective analysis for those of moderate wealth. It also provides you with the opportunity to gather all the data needed to generate a more comprehensive estate analysis.

For example, let's examine a fourth scenario ("Insure LTC & Estate Tax") in which a $300,000 variable survivor life policy owned by John and Fran's children (or an irrevocable trust on their behalf) is integrated into the data to provide an offset to wealth transfer taxes. Let's compare the following:

Phase 2: "Self-Insure LTC Claims" with hypothetical LTC claims paid in cash;

Phase 3: "Insure LTC Claims", i.e., purchase LTC policy to fund hypothetical claims.

Phase 4: "Insure LTC Claims plus $300,000 Life Policy".

Figure 3

Note: We deliberately left the Phase 1 scenario (No LTC Claims or LTC Insurance) out of this analysis on the assumption that the prior analysis pretty much eliminated "doing nothing" as one of the considerations.

As you can see in the InsGift graphic in Figure 3 , the cost of providing both the LTC and the life insurance policy appears to make a tolerable dent in this couple's "comfort zone" of net worth, yet Phase 4 shows that the combination of policies contributes to the amount of wealth transferred to heirs.

Note: LTC may not be available to some clients with high net worth.

Plan Data: InsGift users can review all the data and menu inputs we used to create this analysis by downloading the Workbook associated with this Case Study from the "Workbook Download" section of this website and then importing the workbook into your InsGift System. In this Workbook, the changed assumptions for scenarios #2 and #3 appear under the Desired Cash Flow tab and the life insurance for the wealth replacement trust is under the Gift Scheduling tab in scenario #4. If you would like to download the Workbook now, click here.

If you are not licensed for InsGift and would like more information, please contact an InsMark Account Executive at 1-888-InsMark (467-6275), or click here.

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