Financial planner: taking a closer look at long-term care insurance

A financial planner who has been receptive to the employment of reverse mortgages in financial plans discusses possible strategies to fund long-term care at The Street

As the population of the United States ages and as birth rates decline from prior levels, the amount of spending related to long-term care for older adults is expected to rise precipitously. Because of that, many people are likely thinking about the best methods they can employ to fund long-term care (LTC).

This is according to Robert Klein, a financial advisor and founder of the Retirement Income Center in Newport Beach, Calif. Klein, who in the past has discussed reverse mortgages as a potential tool in a retirement plan, explores some of the ways LTC works and how it could be funded for up to 10 years in a new column at The Street.

For instance, those who may not have a lump sum of cash on hand to fund LTC insurance could look at other policies, including “limited-pay” LTC insurance policies.

“Limited-pay long-term care insurance policies are traditional long-term care insurance fully paid after a fixed number of years, usually five to 10, with 10 being typical,” Klein explains. “Some of these policies have a rate guarantee whereby the premium is guaranteed to never increase during the payment term, e.g., 10 years for a 10-pay policy.”

Limited-pay policies take away the lifetime commitment often associated with annual policies, and could avoid certain instances of a rising premium, he says.

“Annual premiums for 10-pay long-term care insurance policies are approximately 2.5 times the initial premium for comparable annual-pay policies,” Klein writes. “The value of a 10-pay vs. an annual-pay policy becomes more apparent over time as premiums on annual-pay policies increase.”

LTC insurance policies are expensive, but can be well worth the expense when compared with an LTC insurance event such as dementia, he explains.

“In addition to being tax-free, long-term care insurance benefits provide peace of mind since they negate the need to liquidate assets reserved for retirement and other financial planning goals,” Klein writes. “Furthermore, care can be provided by qualified professionals instead of family members. When care is provided by a family member, this can be devastating to the entire family since it negatively impacts family dynamics, disrupts the caregiver’s life, and often impacts the health and wellbeing of the caregiver.”

Klein, guested on The RMD Podcast in 2021, discussed potential points of advice for reverse mortgage professionals seeking a financial planner as a referral partner.

“Just reach out,” he said on RMD #24. “I’ve reached out to people in the reverse mortgage business, various people that I’ve sought out, and experts in the business. I’ve enjoyed mutually beneficial relationships with these people, and I’ve learned a tremendous amount about [the product]. So, I think it’s a matter of reaching out to people that you see that are interested in the business, preferably. And then, just opening up other advisors’ eyes who might not be so obvious that they’re interested in the reverse mortgage business.”

Read the new column at The Street.

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