Asset-Based LTC: Long-Term Care Protection Using Life Insurance Or Annuities

You may have heard it from friends, colleagues, or even the media, but there is clearly increasing momentum for protecting against long term care expenses through asset-based products. If you are unfamiliar with the term "asset-based long term care" - sometimes known as combination or hybrid long term care products - these options combine other types of products, such as life insurance and annuities, with Long Term Care benefits.

The goal of the asset-based strategy is to reposition our client’s savings properly for the most possible leverage. Many of our clients are concerned about potential long-term care needs plan to “self-insure” and create a “just-in-case” stash of money to pay for their care. The cash is often sitting idle in savings accounts, money market accounts, certificates of deposit, or annuities and will often be the payment source for Long-Term Care.

Asset-based Long Term Care plans revolve around the concept of creating a much larger benefit from idle money that is laying around while at the same time creating a scenario where the funds are available should you need the money for other needs.

With many of the options available, policies can be focused on either death benefits or long term care benefits. Benefit periods can range from a few years to lifetime coverage. Some companies allow spouses to purchase a joint policy where each has long term care benefits under a single contract and with or without a single or recurring premium for additional coverage.

With the diversity of products now available, federal income tax advantages, and the value provided, it is clear why repositioning assets into an asset-based Long Term Care plan is gaining traction.

Currently, there are only a few insurance companies that make available an Annuity+Long Term Care combination policy. But a number of companies have products on the drawing board a result of the Pension Protection Act of 2006 that allows for tax-qualified long-term care benefit payments from annuities beginning in January of ‘2010. This means you will no longer have to pay federal income tax on an annuity’s proceeds if you use those proceeds to pay for long-term care coverage. The very fact that Congress enacted this legislation indicates a growing awareness by regulators that there is a fundamental need for long-term-care insurance. Through this provision they are trying to create better tax incentives to enable the industry.

Combo products involving Annuities and Long-Term Care Insurance also provide the ability to generate tax-deferred gains. This is a benefit particularly for those currently in high tax brackets who plan to be in lower brackets when they begin drawing down their accounts. And although gains used to pay for long-term-care needs will be tax-free, gains that don’t fund such services are still subject to tax upon withdrawal.

Another benefit of a combo Annuity+LTC product is the ability to purchase a rider for additional long-term care coverage that would help you tremendously more than what your annuity would pay out for your future long-term care expenses.

If you would be highly rated or cannot health qualify for a traditional long-term-care insurance policy, you might have an easier time getting coverage through an Annuity + LTC policy because there are fewer medical underwriting requirements.

Click here for a free long term health insurance quote or contact us at (858) 350-3161.