Much of our coverage here revolves around active threats to your wealth, including people and events that separate you from your money. Other, less overt threats exist as well including the exposure that long term illnesses can have on the best laid and funded financial plans. Unfortunately, many of these exposures arise at the worst possible time, at or near retirement when income dramatically decreases as well. LTC expert Raymond Levine shares some thoughts on this issue below.
Affluent people own insurance on their homes; have personal contents insurance; insurance on their planes, boats; vacation home, and life insurance to provide liquidity for estate taxes.
Why would they not want to spend $3 to $4 thousand per year (depending on your age and health) of their income to own Long Term Care Insurance which also has tax advantages? If you divide the premiums from their income to the premiums of owning Long Term Care Insurance…….transferring the risk to an insurance company is just pennies on the dollars.
Even if you had the income to pay for long term care services for a single person or couple….why would you want to?
The amount of money spent on homeowners insurance and property taxes on their real estate…..owning a tax qualified Long Term Care Policy for you and your family is a terrific bargain which insures your estate for endeavors that matter……philanthropy, your family, and to preserve your life style.
The wealthy tend to ‘self-fund’ their long-term care needs with extra assets which would otherwise be included in their estates. But with long-term care costs rising incrementally each year and over 70% of Americans 65 and older will need some sort of long term care services, better planning is needed to protect assets. It is not coverage only for the more mature, it is coverage which is beneficial for younger people who become injured or ill for extended periods of time and require long term care services.
If you give further consideration to increasing life-spans and the effect the recession and continuing inflation in health care and health care services has had on many households, it makes sense for affluent people to purchase long-term care insurance as both a hedge against these risks and a protective measure for future giving ability. Long-term care insurance helps people who are unable to perform certain daily activities pay for professional assistance if and when needed. This could be nursing care, an assisted living facility, or home care.
Wealthy individuals tend to want the best home care or the best assisted living facilities which can easily surpass $100,000 per year Even with a brief, 3-year stay in a nursing facility, high net-worth individuals may be looking at a $300,000 expenditure or higher in 10, 15, or 20 years. Even if a family has the economic resources, the real cost of long-term care is not the actual cost, but the opportunity cost. In order to pay out of pocket, individuals will have to hold on to assets in their accounts.
These assets, which would have been used to pay for long-term care insurance years earlier, are now stuck in the individual’s estate, which are subject to, income tax, capital gain taxes, or estate tax. As the years go on, it is increasingly difficult for an individual to transfer assets out of their estate.
With an estate tax of up to 55%, it may be beneficial to pay the insurance premiums and transfer the extra money out of your estate at an earlier date. Fortunately for consumers, long-term care providers have been innovating on products and there are now more and less costly ways of purchasing long-term care insurance.
Depending on how much you’re willing to pay for the insurance now, the return of the premium option ranges from just a small portion, to the entire premium. If you have questions about your need for long-term care insurance, feel free to contact me or your financial advisor.
Even if you can afford the $7-10 thousand per month in health care services or whatever amount it will be in future years for a few years or many years, how would you feel if you had to spend hundreds of thousands of years from your income or assets which maybe allocated for other reasons?
What Long Term Care Insurance does is provide a tax qualified stream of income so it does not disrupt a persons financial or tax plan.
Raymond Levine, “The LTC Guy” can be reached at firstname.lastname@example.org or www.lavinefinancial.com . He works with advisors and individuals on LTC planning exclusively.