With people living longer lives and with the cost of health care increasing much faster than people’s ability to save, the need for some kind of funding mechanism for long-term health care is obvious. One of these options is called asset-based long-term care.
Also called “hybrid policies” or “linked benefit long-term care products”, these policies allow you to leverage insurance to get more long-term care coverage than simply self-funding. Another way of looking at this involves the reallocation of an existing asset.
Asset-based long-term care consists of specific insurance products that combine the benefits of life insurance or annuities with long-term care insurance. Although each policy has its own features, the idea is that if you do not use the money for long-term care costs, the insurance passes on tax-free to your beneficiary. Some advantages include: income tax-free care benefits, benefits even if care is never needed, and the ability to obtain premiums that are guaranteed to never increase. Also, because this is a life insurance policy based on mortality, underwriting is not as stringent as traditional long term care insurance which is based on morbidity.
For example, a 57 year-old woman has the opportunity to take $100,000 and leverage it through the purchase of life insurance (or an annuity) to provide over $221,000 if she ever needs long term care. In addition, most products have a return of premium so you can walk away from this and at least get your money back. In this regard it is a no risk situation – put your money in a product that provides LTC at home or in a facility, if you die it passes on the death benefit tax-free or if you decide to walk away you don’t really lose anything. In this last scenario you don’t gain much either but it’s your $100,000 back and the satisfaction of knowing you didn’t make the wrong decision.
Caveats? You have to have the assets to reposition into one of these policies. However, nowadays you can choose either a single premium or continuous pay model like traditional long-term care insurance and policies can be funded using qualified or non-qualified funds. All premiums are guaranteed never to increase.
Regardless of the path you choose, it’s important to be prepared for an extended care event. The good news is that options exist and being prepared can help lessen the impact. November is Long-Term Care Awareness Month. We encourage you to review your financial goals and think ahead about how you and your family would manage a long-term care situation.
Allison Payne, CLTC
Long Term Care Specialist, ACSIA Partners
Tags: Retirement, Long Term Care, Planning, Hybrid, Asset-Based