Making a case for long term care insurance can be a challenge under any circumstances. But in this environment, clients nearing retirement who have seen the value of their portfolios decline may be particularly reluctant to consider a major new expense.
Digging deeper into the details of each client's financial and family picture, however, can demonstrate the value of LTC insurance — and your advice.
Let me share the story of one of my clients, who is the founder and owner of a successful company in the construction business. The process by which I helped persuade him and his family that LTC insurance could be beneficial may help you in similar situations.
My client is 65 and has adult children, two of whom work in the business. The children's mother died, and my client has remarried a woman who is 55.
They have no children together, and his children get along well with their stepmother.
The business grosses about $100 million annually and nets about 4%. The second wife has no ownership stake in the business but is well-provided-for in the husband's will and has assets she brought into the marriage.
For much of their retirement income, my client is counting on distributions from the business. As long as the business prospers, they will be financially independent.
During a recent quarterly meeting, we reviewed the client's estate and discussed succession planning. Then I asked how he wanted to address the issue of long term care.
The mood chilled.
If anything happened, my client was insistent on being able to stay at home with around-the-clock care regardless of the cost. The wife reluctantly acquiesced but wanted to buy LTC insurance to pay for the cost, because she didn't think that his children were capable of managing the business successfully without his active involvement.
The business has grown significantly in recent years, but the backlog is slowing.
Unfortunately, my client didn't want to address his wife's concerns about his children's ability to operate the business effectively. He is confident in their abilities, though I have raised the same issue in my role as a financial adviser to the business and understand the wife's concerns.
When I raised the succession question, he became very defiant and downright belligerent. As a wise second spouse, his wife knew that the topic of his children's entrepreneurial talent was off-limits.
As the construction industry is cyclical, she and I are concerned about the second generation's ability to survive an inevitable downturn.
The husband's response to the wife's LTC suggestion was immediate: He was dead-set against paying the premium. In fact, he considered the concept of LTC insurance insulting, believing that his financial resources and his family would provide for him.
Oh, if life were that simple.
Since our meeting had covered succession planning, I raised the possibility of directing the business to pay the non-deductible premium and incorporate the payment into the buy-sell agreement. My client thought about that and said it might be all right, depending on how his children responded.
At my client's request, I spoke with his two sons, who were quite receptive to the proposal. It seems that they weren't excited about paying for their father's long term care themselves and loved the concept of paying for the LTC insurance out of the business rather than out of their pockets.
My client was fine with this approach because he saved face. For the time being, his wife is satisfied, though she thinks that the payment burden will ultimately fall to her when the sons take over and the business fails.
In family dynamics, getting a consensus frequently defuses potentially charged issues that involve money. In
financial planning, achieving the long-term goals of clients often requires creative thinking.
D. Randolph Waesche, a certified financial planner, is president of Resource Management Inc. in Metairie, La.
