Secure 2.0 May Stabilize the Long-Term Care Toolbox: Howard Sharfman

Insurers saw offering LTCI coverage as a way to profit by offering a desperately needed product to the 76 million baby boomers.

Starting around 2000, higher-than-expected benefits usage and the effects of falling interest rates on insurers’ investment earnings began to hurt LTCI products’ performance. State LTCI premium stability laws prevented insurers from addressing LTCI product losses by increasing premiums.

Issuers began to flee from the market. In December, for example, the federal government’s Federal Long Term Care Insurance Program began a two-year moratorium on new applications in response to concerns that benefits costs would outstrip program financial resources.

Sharfman’s Views

Sharfman predicted that the new Section 334 law will help some clients find the cash to pay for long-term care planning arrangements.

But he said agents and advisors will have to make sure that clients understand that increased income tax bills will be just part of the cost of using cash already in an IRA or 401(k) plan account for LTC planning.

“In addition, the future value of the retirement account can be significantly affected by the early withdrawals,” Sharfman warned. “For example, if a client withdraws $2,500 annually from their IRA from age 40 to age 70, and earns an annual rate of return of 7%, their IRA will be negatively affected by over $236,000. On the other hand, the client will have very valuable long-term care coverage.”

One solution is for advisors to talk about the value of adding overfunded life policies and income annuities to a client’s portfolio, to create other mechanisms for paying for long-term care services and funding LTC planning arrangements, he said.

Howard Sharfman. (Photo: MDRT)