Blog #6: How To Prove Which Of Your Clients Should Purchase Long Term Care Insurance

(Presentations were created using Wealthy and Wise®.)

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Sometimes it seems there are only two kinds of prospects for long-term care insurance: Those who can’t afford it and more affluent candidates who can — but resist spending the money thinking, “I’ll just self-insure it.”

Next time you run across one of the latter, ask this question: “Would you like to know mathematically whether self-insuring is a valid option?” Most affluent people will want to hear what you have to say. For example:

Assumed Client Data

Clients: Age 65 and 60

Net Worth: $3.5 million

Desired After Tax Retirement Cash Flow: $100,000 indexed at 3.00%

Assumptions

  • Assume a claim occurs in 8 years for one of the insureds that lasts for 6 years, after which death occurs.
  • Assume the total benefits for the claim on a monthly basis will be $6,000 in today’s dollars — and medical inflation averages 5% a year.
  • Assume the annual premium for a Long-Term Care policy with an inflation rider covering both individuals is $12,000 — reducing to $6,000 during the claim period.
  • Assume the inflation rider increases total monthly benefits by 5% (compounded) a year.
  • Assume retirement cash flow needs decline by 25% during and after the claim period.

Let’s compare three scenarios:

  1. No coverage purchased and no claim costs assumed.
  2. No coverage purchased and claim costs paid via withdrawals from Net Worth.
  3. Coverage purchased and claim costs paid by the insurance company.

Hold on to your hats. Here are the results using InsMark’s Wealthy and Wise® software system.

net worth after providing required cash flow graph

Why is buying the LTC insurance the most efficient option?

Remember the assumption above where “retirement cash flow needs decline by 25% during and after the claim period”. Each client’s situation will require different assumptions, but in this case, it’s simple mathematics — the present value of the reduction in retirement cash flow more than offsets the present value of the cost of the premiums for the Long-Term Care policy.

This logic also makes self-insuring slightly more efficient than doing nothing — but the insurance option is the winning strategy by a large margin.

Go forth and be productive . . . but if you aren’t using Wealthy and Wise®, you don’t want to run into a competitor who is.

InsMark’s Referral Resources

If you would like assistance with any InsMark illustration, contact any of the Referral Resources listed below.  All are InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software and can help you using your choice of insurance company.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers.

Click here to review the 20 summary reports for this Case Study.

Click here to review the 65 detailed reports for this Case Study.

 

InsMark’s Digital Workbook Files

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Click here to learn more about InsMark’s Wealthy and Wise®. You can also contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275). Institutional inquiries should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or 925-543-0513.

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Blog #5: It’s Awkward Trying to Sell My Friends

Blog #4: If Something Important You Believe To Be True Turns Out To Be Wrong, When Would You Want To Know About It?

Blog #3: Identifying Good Prospects, Discarding Bad Ones

Blog #2: Anyone Want a Free Dog?

Blog #1: “Tell Me What’s Wrong With It?”

 

3 Reasons Why It’s Profitable For You To Share These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

 

Robert B. Ritter, Jr. Blog Archive

 

Blog #5: It’s Awkward Trying to Sell My Friends

(There are no InsMark presentations used in this blog. It is a an informational blog only)

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It doesn’t have to be. Although prospecting among friends can be uncomfortable, there is an easy way to do it.

Here’s how . . .

During a casual moment with a friend, say this:

“From time to time, I come across good ideas for [you fill in the topic, such as: retirement planning, estate planning, reducing taxes, etc.]. When I do, would you like to know about them?”

With a negative response, let it go. But often friends respond with “sure.” If so, respond with an “OK”, and give it a couple of weeks.

Then make an appointment to discuss whatever applies by saying: “I ran across something you’ll be interested in reviewing. How about lunch this Friday?”

Social prospecting is easy with this strategy. Just be sure you have a very interesting idea to discuss that you think applies to this prospect.

InsMark’s Referral Resources

If you would like assistance with any InsMark illustration, contact any of the Referral Resources listed below.  All are InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software and can help you using your choice of insurance company.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers.

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Blog #4: If Something Important You Believe To Be True Turns Out To Be Wrong, When Would You Want To Know About It?

Blog #3: Identifying Good Prospects, Discarding Bad Ones

Blog #2: Anyone Want a Free Dog?

Blog #1: “Tell Me What’s Wrong With It?”

 

3 Reasons Why It’s Profitable For You To Share These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

 

Robert B. Ritter, Jr. Blog Archive

 

Blog #4: If Something Important You Believe To Be True Turns Out To Be Wrong, When Would You Want To Know About It?

(Presentations in this Blog were created using the InsMark Illustration System.)

Getting Started with InsMark Training Video

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Suppose someone says to you:

  • “Cash value life insurance is a rip-off only a financial idiot would buy.
  • Or “It’s better to buy term insurance and invest the difference.”
  • Or “Why would you spend thousands for something you could get for a few hundred?”
  • Or maybe you run into Suze Orman who says repeatedly:

wolf blowing on documents“I HATE WHOLE LIFE INSURANCE”

“I HATE UNIVERSAL LIFE INSURANCE”

“I HATE VARIABLE LIFE INSURANCE”

“THE ONLY TYPE I LIKE IS TERM INSURANCE.”

There is no valid economic theory that explains why a bad idea is acceptable simply because one hears it frequently.

So – consider asking this question of those who think like Suze Orman: If something important you believe to be true turns out to be wrong, when would you want to know about it?

How about . . . now?

Case Study

George Baker is age 45 and is in a 40% marginal tax bracket. He plans to purchase $500,000 indexed universal life with scheduled premiums of $20,000 a year for the first 20 years; $0 thereafter. Cash values are illustrated growing at 7.5%, and the policy is intended to provide:

1) Protection for his family;

2) After tax cash flow of $60,000 a year from age 65 to 95 (withdrawals to basis; loans thereafter).

One of George’s advisers asks, “Why would you spend $20,000 when you could get term insurance for $600?”

If that’s all there is to it, he shouldn’t. But has anyone ever bothered to show you mathematically why term insurance is always a preferred choice? Or if you ask, do you get something like, “Duh . . . isn’t it obvious?”

Actually, it’s not obvious at all. American humorist Josh Billings once said that “It ain’t ignorance causes so much trouble; it’s folks knowing so much that ain’t so.”

We compared George’s indexed universal life to $500,000 of 20-year term insurance at $600 a year. The term insurance alternative assumes a side fund yielding 7.50% on $19,400 a year, the difference between the $20,000 premium for the indexed universal life and the $600 premium for the term. We included a management fee of 0.75% for the side fund.

In order to match the term and side fund with the $60,000 cash flow from the indexed universal life policy from age 65 to 95, the side fund has to deliver the same $60,000, and it doesn’t come close to doing so.

See the differences in values below.

term insurance and side fund indexed universal life image

*Year 20 is the last year of the term life coverage. Thereafter, there is the side fund only, and it is depleted in year 32.

The cash value of the indexed universal life (Col. 4) outperforms the side fund (Col. 1) by a considerable margin. In addition, the death benefit of the indexed universal life (Col. 5) remains in force long after the term insurance expires (Col. 2). All this occurs with no premiums required by George during his retirement years.

50th year summary analysis image

Click here to review the comparison illustration in detail.

Conclusion

If cash flow is in short supply or if the need for coverage is for a brief period, term insurance can make a lot of sense; however, for longer intervals, if the cash flow exists to buy what you want, a cash value policy is the only logical choice.

InsMark’s Referral Resources

If you would like assistance with any InsMark illustration, contact any of the Referral Resources listed below.  All are InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software and can help you using your choice of insurance company.  Mention my name when you talk to one of our Referral Resources as they have promised to take special care of my readers.

 

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

Digital Workbook Files For This Blog

Blog4.zip

Download all workbook files for all blogs

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

 

For a license to use the InsMark Illustration System, go to IIS or contact Julie Nayeri at InsMark at julien@insmark.com or 1-888-InsMark (467-6275). Institutional inquiries should be made to David A. Grant, Senior Vice President – Sales at dag@insmark.com or 925-543-0513.

seperator image

Blog #3: Identifying Good Prospects, Discarding Bad Ones

Blog #2: Anyone Want a Free Dog?

Blog #1: “Tell Me What’s Wrong With It?”

 

3 Reasons Why It’s Profitable For You To Share These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

 

Robert B. Ritter, Jr. Blog Archive

 

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Zero-Split-Case-Premium-Financing-click-here-to-receive-more-information