New Approach to Long Term Care Insurance

The Growing Cost of Long Term Care

Under the traditional LTC insurance, you pay an annual premium for an insurance policy that will pay your nursing care in the future. It's hard for so many people finding being tough to shell out a LTC insurance policy that they may never use. But the costs keep rising (they can be more than $70,000.00 per year) - so you need to take a hard look at your finances to see if they could sustain such a devastating blow. After all, you insure your car and your home, so why not your well-being?

Introducing a Solution

Now there's a solution that allows you to buy LTC coverage and have the comfort of knowing that your premium dollars will not be wasted if the coverage is not used. This new product combines the best features of life insurance and long-term care into one designed package; it is typically sold as a universal life contract that requires a single premium and that funds an accidental death benefits rider to pay out long-term care benefits if needed.

A single premium payment into this Universal Life product combines three features in one product -

Combo LTC/Life Policy:

1. Tax-Deferred Cash Accumulation Account - Asset protection

2. Life Insurance with An Income Tax-Free Death Benefit

3. Income Tax-Free Long-Term Care Benefit

Once the premium is inside the Universal Life (UL) insurance policy, the account value earns an interest rate (typical at least 4%) on tax-deferred basis, building up a cash value reserve that can be used tax free to cover nursing or home care costs.Any money that is not spent on nursing care benefits will be distributed to yours heirs as an income tax-free death benefit under Internal Revenue Code Section 101(a)(1).

Funding the Plan

This type of LTC/Life plan typically requires a one-time lump sum deposit amount rather than the traditional monthly or systematic premium payments. Therefore, you're entering into an asset transfer process that will require you to uncover "lazy asset" to invest in the policy. Common assets considered for investment include ban certificate of deposit (CD), savings accounts and other fixed-income investments. You might also find a variety of previously issued permanent life insurance policies with cash value that you can combine and use as the initial transfer into the LTC/Life contract.

As with all life insurance, medical underwriting is required for those applying for a policy. As the Insured, you can simplify this process in one of two ways:

- You can structure the policy as a Modified Endowment Contract (MEC) to reduce the amount of pure risk

in the contract.

- You can also do a joint life underwriting, where typically only one of the spouses has to be reasonably healthy for the policy to pass through underwriting.

Conclusion

By including an LTC/Life plan in your retirement portfolio, you gain the opportunity to leverage a lump sum of your retirement savings for multiple benefits on both generational wealth transfer and long-term care protection on a tax-favored basis. If you decide not to obtain an LTC and choose to "self-insure" instead, you need to set aside a significant amount of money to cover all the risk.

This new type of LTC/Life policy helps you to avoid the frustration of paying premiums for a long-term care policy that might never be used. It also work as an effective estate planning tool that allows you to remove the premium from your taxable estate or to have the policy owned by your adult children, thus also allowing the death benefit to be removed from your estate.