Asset-Based Long-Term Care Deserves a Look

December 20th, 2016

Over 1.4 million people in the United States are in nursing homes. Our population is aging, and about 70 percent of them are expected to need long-term care at some point. Some stays will be brief. On average, care will be needed for three years, but a significant number of people are in long-term care for five years or longer.

It's no surprise to learn that the cost of that care is high, and continues to rise. Despite the likelihood that some form of long-term care will be needed, however, most people don't get long-term care insurance, even though they acknowledge it would be a good idea to have. Why not?

There are a few reasons that people don't get long-term care insurance. One is that the availability of such insurance is declining. Many carriers have stopped accepting applications for new policies. Another reason that people don't obtain long-term care insurance is that premiums have been on a steep rise in recent years.

While many people acknowledge the benefits of long-term care insurance, the difficulty securing it, the increasing cost of doing so, and the possibility that it will never be needed dissuade many from pursuing insurance. After all, who wants to funnel significant resources to a policy that may never pay off?

Asset-Based Long-Term Care as an Alternative to Long-Term Care Insurance

Fortunately, there is an alternative to traditional long-term care insurance (other than spending down your assets in order to qualify for Medicaid). Asset-based long-term care is an option that avoids some of the problems with long-term care insurance.

Asset-based long-term care plans, sometimes also called linked benefit policies, are built on the foundation of either a whole-life insurance policy or an annuity. When the proper arrangements are made, the value of the annuity or death benefit of the life insurance policy can be used to pay qualifying expenses for long-term care.

Advantages of Asset-Based Long Term Care

Funds from an asset-based long-term care plans are not subject to federal income tax, which is a tremendous advantage. Another benefit of these plans is that owners are not simply paying premiums into a void if they turn out not to need long-term care. If funds from an annuity or policy are not exhausted by the need for long-term care, they are payable to the policy or annuity holder's designated beneficiary.

In addition to these benefits, asset-based long-term care plans offer a variety of product options to best meet a given consumer's needs. Premiums may be paid in a lump sum or spread out over time. You can also "trade in" the cash value of an existing life insurance policy to help pay the premiums of a new policy that has long-term care benefits. Plan holders are guaranteed a certain level of protection without being subject to premium increases.

Coordinated asset-based long-term plans may transfer funds from an IRA into an insurance policy that offers long-term care benefits. This allows the owner of the annuity to insulate him- or herself from long-term care expenses while simultaneously reducing the tax burden on heirs.

For couples who are concerned about future long-term care expense, there may be an option to purchase an insurance policy that is structured such that it offers both long-term care protection without risk of a premium increase.

No matter your circumstances, don't risk not having the coverage you may need for long-term care. While crisis planning is possible, it's best to be prepared. Consult an experienced Ohio long-term care planning professional about securing coverage that meets your needs.

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Tags: Long Term Care