Mastering the Self-Funding Objection

By Jason Dutra

I have this conversation often, always with a similar mindset. I’m not here to tell anyone that self-funding is not a solution. I’m here to show why self-funding is an incomplete solution that should be part of a larger one.

“I have the assets to self-fund my long-term care.”

“My advisor has told me that I can self-fund my long-term care.”

These are objections that even the most successful long-term care specialists fear. I can completely understand why.

The self-funding objection generally comes from affluent prospects and clients, who, in many cases, actually do have the means to self-fund a long-term care claim. Generally, they are planning to self-fund using market accounts. They usually have relationships with financial advisors that they trust implicitly, who are telling them the same thing. It’s a hard objection to argue with- so don’t!

I have this conversation often, always with a similar mindset. I’m not here to tell anyone that self-funding is not a solution. I’m here to show why selffunding is an incomplete solution that should be part of a larger one.

Here are some tips I have to offer should you encounter an objection to LTCi rooted in self-funding.

Avoid Confrontation and Inspire Collaboration

The most powerful response to a prospect that says they have the means to self-fund is “I believe you, and I agree.” Arguing the point is going to cause a lot of frustration, because in many cases, they are technically right. They could self-fund.

Obviously, the conversation doesn’t stop there, but you’ve immediately acknowledged the prospect’s ability to self-fund rather than doubting or arguing with it. Once you’re there, you can start to talk about how you can collaborate to find the most efficient solution.

Communicate Why Insurance Can Be a Better Deal

Remember, your goal is not to tell the prospect that they shouldn’t be doing some sort of self-funding, or that they can’t self-fund. Your goal is to show the prospect that insurance is likely a better deal. You need to be able to explain why insurance should be part of the plan, and the possible risk involved with a plan that is fully self-funded using the market. Here are a few good talking points.

Compare the Leverage

In any good financial plan, we want to make our financial contributions help us as much as possible toward our specific goal. It’s a good idea to compare the performance of long-term care insurance to a market account at an assumed rate of return.

Show the same amount of money being contributed to the market account as the projected LTCi premium. Let the numbers do some of the talking for you.

Timing Risk

Timing is a big risk that is presented when putting all of your LTC planning dollars into the market. Perfectly timing both when you will need care, and what shape the market will be in when you need it, is rather impossible. If an extended care event were to take place, and we were in a down market, we would still need that money for long-term care now. What that creates is a scenario where we would be forced to sell our assets low, breaking one of the simplest cardinal rules of investing.

Moreover, if we were in a situation where we had an extended care event early in life, in the first few years after we put our plan in place, our market account may not have had time to grow to an amount that would provide substantial value to us. Long-term care insurance is immediately leveraged and would oftentimes provide far more financial relief than 1-3 years of market growth.

Taxation Risk

This is not the case for all self-funding vehicles, but it’s still good to keep in mind. Many market accounts that a prospect could use for self-funding could be taxed when you draw money from them, eroding your overall value received when you need it most. Long-term care insurance benefits are received tax-free. If there’s anything that is a thorn in the side of high net-worth individuals, it’s taxes, and offering solutions that avoid them is always appreciated.

Summarize

If you’ve done a good enough job laying out your talking points, you can confidently make the statement that fully self-funding your LTC costs in the market represents an overpay. High net-worth individuals generally get to the position they’re in by efficiently earmarking their money for each individual purpose, and not overpaying to do so. The best statement I’ve ever heard to sum this up is, “I’m not sure what level of wealth it takes to become comfortable with intentionally overpaying for things.”

Why Not Use Both?

Staying in line with a non-confrontational sales strategy, once you’ve done the job of showing why insurance can be a good deal for long-term care funding, you should recommend a strategy that combines your strategies together.

Insurance, though highly leveraged, can be costly. Communicate that most clients are not funding 100% of their long-term care risk with insurance, either. It’s either not economically realistic for them, or they just plain don’t want to.

Educate the client on the cost of care in their area. Once they have an idea of how much they might have to pay for an extended care event, ask them what percentage they would be comfortable funding using the insurance company’s checkbook, and what percentage they would be comfortable funding using their own. Collaborate with them. This is their plan, after all.

In Short: Education and Collaboration Wins

Hopefully, the approach that I’ve outlined for you will help you to win some of these difficult cases. This strategy provides benefit to the prospect, the advisor, and of course, to you as the specialist.

The prospect is empowered by their education and has a more efficient plan that they feel good about. They also now have a long-term care professional by their side should things go south.

The advisor protects themselves against large amounts of legacy AUMs being taken out of their control by an extended care event.

You, if you’ve done a good job, may also have gained a new client, and potentially a new referral partner in the advisor.

Jason is Director of Partner Success for BuddyIns. He shares the tools and processes that each partner needs to make their experience with BuddyIns a positive one. As an LTC insurance specialist, Jason’s experience and vital interaction with partners are often some of the first impressions of BuddyIns, so he approaches the hybrid role of tech innovator and onboarding advisor as a privilege. Jason can be reached at jason@buddyIns.com