Like many, you may question whether you’ve saved enough to tide you and your family through unanticipated life events and still maintain your standard of living in retirement. It may come as a surprise that there is a safe, tax-free way to provide for any of your future long term care needs while simultaneously providing a guaranteed death benefit for your heirs when you’re gone.
The two biggest concerns many of us have as we plan for the future are whether we’ve saved enough to pay for any unforeseen health care or other needs as we age and how to protect those assets to pass as much as possible on to our heirs. It is estimated that about 70 percent of adults age 65 and over will need some long-term care during their lives and about 20 percent will need such care for longer than five years.
The cost of that care varies widely by state, by services provided, and care required. Costs also vary depending on whether it is provided in an independent living facility, assisted living community, nursing home, or continuing care community. While some states cost less, the average annual cost for long-term care in the United States is about $120,000 and up.
No one has a crystal ball to see what our futures hold, how we will die, or whether we will need care. Few of us like to contemplate our own mortality and those of us willing to consider it often struggle with anxiety over potential future risks. The need for long-term care cannot always be anticipated. A stroke or heart attack or serious injury can happen without warning. More often, people need long-term care when they have a serious illness or disability that worsens over time such as Alzheimer’s or dementia. That care may be needed for many years at a very high cost, putting a dent in anyone’s budget.
One key part of a stress-free retirement is the ability to transfer the future risk of needing to pay for expensive care to a financially stable insurance company.
By combining long-term care insurance with permanent life insurance in an asset-based long-term care policy, you reposition assets now invested in separate or different assets into one tax-advantaged vehicle that will provide more than any traditional LTC policy because it will have a guaranteed life insurance death benefit with a cash value like any insurance policy. The difference is that, while you’re alive, you can access the funds available in the death benefit tax free to pay for typical long-term care expenses such as assisted living, home health care, etc.
WHAT IS ASSET-BASED LONG-TERM CARE INSURANCE?
Asset-based long-term care (ABLTC) insurance is a life insurance policy. Permanent or whole life insurance traditionally pays a death benefit to your beneficiaries when you pass away. Whole life policies can accumulate cash value over time as premium payments earn interest. With an asset-based long-term care policy, you can accelerate payments from your death benefit to pay for long-term care if needed. If you remain healthy and don’t need long-term care, the entire death benefit will be paid to your beneficiaries upon your death.
Asset-based long-term care insurance is simultaneously similar to and different from a traditional life insurance policy that includes a long-term care rider. With a traditional policy, you are purchasing a death benefit first and adding a secondary benefit that pays long-term care expenses. With an asset-based long-term care policy, benefits for long-term care are paid first and death benefits after.
Asset-based long-term care insurance typically is funded either with one premium payment or scheduled regular payments. That’s similar to traditional long-term care insurance, which is financed with either lump sum or monthly payments. You can fund the plan with a variety of different assets, including cash lump sum, annual premiums, non-qualified annuities, qualified money, cash value life insurance, and more.
OneAmerica Financial Partners, a national leader in financial services and insurance for nearly 140 years, is the only insurance underwriter in the United States that offers an Asset-Based Long-Term Care policy with a unique Long-Term Care Benefits Continuation Rider. This optional offering to extend funding for long-term care that extends care after the underlying life insurance policy benefit is exhausted can pay for additional years of LTC or a lifetime benefit – a bottomless bucket of money to pay benefits after base life insurance policy is exhausted.
It has been suggested that one way to understand ABLTC is to view it as akin to a high deductible or catastrophic medical insurance policy where the high deductible allows premiums to be kept very low. In the case of ABLTC, the life insurance satisfies that deductible, while the benefit continuation rider kicks in when needed to continue to pay extended benefits.
The major disadvantage of traditional long-term care insurance alone is that you can pay premiums for years and never benefit from the policy. (A joke has been made that LTC stands for Lose the Cash.) After LTC policies first were offered in the 1980s, the market grew dramatically for two decades. Since then, even as the U.S. population grew older, LTC policies have become less popular because premiums skyrocketed while policy benefits decreased.
The peace of mind this benefit provides is so popular that 95 percent of OneAmerica Financial Partners policyholders chose to add the unique rider option to their policies. At the same time, premiums for this rider are guaranteed never to increase. By taking this step, you are in essence carving out a small portion of your investments to protect the rest of your portfolio. OneAmerica also offers an optional Inflation Protection Rider to provide annual increases to your policy’s monthly LTC benefits to accommodate the rising cost of care over time. Premiums for this rider are in addition to the base ABLTC policy and are guaranteed to never increase.
As the cost of LTC plans rose, more than 25 years ago, OneAmerica Financial Partners invented ABLTC. No other insurance carrier in the United States offers such a policy with an unlimited long-term care benefit with multiple tax-efficient methods to finance and leverage assets. This means that as a policy holder, you will receive an unlimited lifetime long-term care benefit and, even if you never need long-term care, your beneficiaries will receive a tax-free benefit upon your or your spouse’s death.
HOW ONEAMERICA ABLTC WITH LIFETIME LTC WORKS
Most investors are aware that savings vehicles established by federal law generally are the most tax efficient ways to save for retirement. Conventional vehicles – Individual Retirement Accounts, Roth IRAs, 401(k)s, and profit sharing plans – all have strict limits on the amounts high-wealth taxpayers may contribute. Your contributions grow tax deferred with taxes paid on withdrawals from all these accounts except tax-free Roth IRAs.
If you want to put larger amounts away for a rainy day, annuities and permanent life insurance are the two tax-deferred ways to boost your retirement savings as they have no contribution limits.
All these accounts allow for loans against your account balance except for IRAs and annuities, but what if you want to withdraw some of your money? Only permanent life insurance policies and Roth IRAs allow you to take penalty-free withdrawals while you’re still working and permit unlimited access to your contributions.
Only permanent life insurance gives you BOTH unlimited tax-deferred savings and unlimited access to your savings during your working years while also providing a tax-free guaranteed death benefit for your heirs if you die prematurely.
With an ABLTC, your monthly long-term care benefits, if needed, are exempt from federal income taxes as is the death benefit paid to your beneficiaries.
The mechanics of an ABLTC are not complicated. In consultation with your TSP Family Office strategist, you would design a base whole life insurance policy that will earn interest and grow in value over time.
For example, a base life insurance policy of $250,000 would provide long-term care benefits of $5,000 per month to two persons for 50 months, when the insurance policy would be exhausted. One advantage of an ABLTC plan is that you can choose a joint policy to provide LTC benefits for yourself and your spouse or other loved one.
The policy can purchase an LTC benefits continuation rider for an additional premium to provide lifetime LTC benefits. While shorter extensions are available, most policyholders choose a lifetime benefit so if one individual suffers a long, expensive illness, there still will be coverage as needed for the spouse.
AN ABLTC POLICY PAYOUT IS GUARANTEED
The policy guarantees a payout. It may be in the form of long-term care benefits paid to you or a death benefit paid to your beneficiary. If you don’t use long-term care benefits, the policy passes to heirs tax-free when you pass away. Either way, you’re guaranteed to get the value for the policy returned to you or your beneficiaries.
As long as the money from an asset-based long-term care plan goes toward qualified long-term care expenses, the benefits also pay out tax-free.
If a tax-preferred asset-based long-term care policy appeals to you, remember that only the OneAmerica ABLTC plan offers an optional Long-Term Care Benefits Continuation Rider that can give you life-time care benefits.
Don’t let the fear of possibly needing long-term care insurance rush you into purchasing a product that might not be right for you or your family. When you’re ready for a thorough evaluation of your needs and circumstances, contact Brian Shey.