Long Term Care Highlights
By Joel Zimmerman

Can You Fund Long-Term Care Expenses without Standalone LTCi Policies?

An effective savings strategy for the future is crucial, and planning for long term care is a good place to start. Statistics show that 70% of people will face the need for long term care services at some time in their lives, especially with life expectancy on the rise. Inflation, however, is rising too.

Today, you could pay over $150,000 for one year in a semi-private nursing home, and these costs have risen by almost 20% in the last 5 years!

Long Term Care Insurance – Is It Worth It?

When you’ve taken the time and effort to start saving for the possibility of long-term care at some stage in life, it’s important to assess whether an LTCi (Long Term Care insurance) policy will really cut it. The coverage and policies can be very expensive to invest in, or you may find that you are not eligible for them at all.

Here are 4 effective alternatives that can help you fund long-term care expenses:

1. LTCi is not the only option: Try hybrid or linked-benefit plans

As discussed above, long term care insurance can be expensive or impractical for most, and unavailable to others who aren’t healthy enough. Many worry about losing the investment made in LTCi if it is unused, so it’s a good idea to explore alternatives like life insurance policies with tax-qualified LTC riders.

Plans that are a hybrid of life and long term care have been gaining popularity, since they allow access to the death benefit if you need LTC, but this will be awarded to beneficiaries if you don’t use it.

2. Use life insurance to pay for long-term care

Investing in certain kinds of life insurance allows you to access a cash value, which you can withdraw or borrow against when you need money for long-term care. They can also be sold through a life settlement option, if you need to pay for long term care services. Sometimes, you could get as much as three times the cash value by selling the plan!

There is also an option for a terminally ill policyholder to sell the life insurance plan through a viatical settlement, generally with no income tax on the proceeds (calculated based on their life expectancy as well as the benefits of the policy).

3. An annuity income plan can help you pay for LTC

Annuities are typically used as a form of investment for those who wish to generate an additional source of retirement income, but many include tax-qualified LTC benefits too. You could opt for a fixed annuity with additional long term care riders, which works out less expensive than LTCi plans, and offers you a fixed income.

With some of these plans, you could get two or three times the payout if the funds are used for long term care services. You also enjoy the option to make a one-time payment instead of lifetime premium payments (with inflation) for LTC plans.

4. Upgrade your existing coverage to a hybrid plan

If you’ve bought life insurance or an annuity, look into exchanging your existing plan for a hybrid one that covers all the bases. 1035 exchanges under the Pension Protection Act of 2006 make it possible to exchange traditional insurance plans and annuities to hybrid or LTCi policies, without any tax burden on accumulated cash values.

Not only does upgrading your coverage make sense tax-wise (since a qualified LTCi plan lets you enjoy tax-free gains for qualified long term care expenses), it also offers you access to the income/death benefits that an annuity or life insurance plan offers.

Shop around for the right plan, since what works for someone else may not work for you. Since this can be complex and confusing, you’d do well to consult an experienced financial advisor like LifeCentra, so contact us for a free review of your coverage today!

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