By Bill Monte, CLU, ChFC, CLTC, LTCP, RICP
There are a number of things that you shouldn’t take gambles on in life, like your retirement savings, how you raise your kids, or especially your health. Unfortunately, many Americans do take one particular risk with their health, possibly without even realizing it, and that’s neglecting to develop and implement a proactive plan to pay for their future long-term care. It is the one thing that can cripple even the most solidly built retirement income plan, especially with the fact that the average daily rate for custodial care for a private room in a nursing home in the Rochester, NY area sits currently at $485 per day! And Medicare doesn’t pay a nickel of it!
But one of the problems that consumers are facing these days is that traditional “stand-alone” long-term care insurance policies have become quite expensive due to the premium rate increases that have occurred and the worry that more may follow in the future. Another perceived negative of traditional long-term care insurance is that it is a “use it or lose it” proposition. You could pay premiums on your policy for 30+ years and then end up peacefully passing away on your pillow. If that occurs, there is no cash value in long-term care insurance. There is nothing that your spouse or other beneficiaries receive from the plan after the policy owner’s death. All of the premiums that were paid into the plan are gone forever.
This is one of the reasons that the Hybrid Life Insurance/Long-Term Care Combinations Plans have become so popular. With these plans, the “use it or lose it” dilemma is removed from the equation entirely. If you pass away and never need long-term care, your beneficiaries are assured to receive an amount that is substantially more than the amount of premiums that you paid into the plan because of the substantial tax-free life insurance death benefit that is paid.
What is a Hybrid Life Insurance /Long-Term Care Combination Plan?
These plans are nothing more than a permanent life insurance policy that has an added long-term care rider attached to the plan. If you end up needing long-term care during your lifetime, you are then able to take monthly amounts from the death benefit of the policy on a tax-free basis to pay for any form of long-term care that you may be receiving. You qualify for the long-term care benefit the exact same way as you would with traditional long-term care insurance where your doctor deems that you cannot perform 2 of 6 activities of daily living (ADL’s) or you have developed a severe cognitive impairment.
Universal life insurance is the type of life insurance that is most commonly used in hybrid plans due to the fact that it allows complete flexibility as to how you decide to fund the plan. You could make annual deposits into the plan every year coming from your available discretionary income or you could deposit just one-time lump sum amount (in the first year only), or anywhere in between. I own a Hybrid Life Insurance/Long-Term Care Combination Plan personally (as does my wife) and I funded my plan with a lump sum in year 1 (from an inheritance that I received from my grandmother) and then followed with annual payments each year from my discretionary income from year 2 until I’m age 72 (I’m 57 now) when my RMD’s from my IRA begin. I custom tailored the funding of my Hybrid Life Insurance/Long-Term Care Combination plan in a way that worked best for me and my unique situation. Everyone’s situation is different.
Let’s look at an example. Let’s say someone wanted to create a $1,000,000 Hybrid Life Insurance/Long-Term Care Combination plan to leave as a legacy for their children and grandchildren. The plan would also have a long-term care rider attached that would create a monthly amount that could be “accelerated” from the death benefit of the policy during the policyowner’s life on a tax-free basis to pay for his/her long-term care expenses, whether that be care at home, in an assisted living facility or in a nursing home. When the plan is originally implemented, the long-term care rider options that you can choose from allow you to receive a monthly amount equivalent to between 1% and 4% of the death benefit amount to use for long-term care expenses. For example, if you elected the 2% monthly long-term care rider, then you could take as much as $20,000 per month out of the $1,000,000 death benefit ($1,000,000 x 2% = $20,000 per month) to pay for the long-term care that you were receiving. At your eventual passing, whatever you didn’t take from the $1,000,000 death benefit of the policy to pay for long-term care expenses, would go income tax-free to your chosen beneficiaries.
I love these hybrid plans because they accomplish two planning objectives within one planning strategy. It checks off both the Legacy Planning and Long-Term Care Planning boxes. Please remember that the independence of my practice allows me to research and explore ALL Hybrid Life Insurance/Long-Term Care Combination plan options that are available in New York. If you happen to own any real estate property outside of New York (winter home in Florida for example), that allows me to research the hybrid plans available in that state as well.
Is A Hybrid Life Insurance/LTC Insurance Combination Plan Appropriate For You To Consider?
Planning for your future long-term care is not fun. Not at all. It’s not something that we like to think about. When you’re healthy and thriving, it’s easy to back-burner the issue and focus solely on building your wealth to provide for the retirement income that you’ll need to create your ideal retirement. It’s pretty easy to forget about the potential need for long-term care as you age. But no matter what your health looks like today, proactively planning for an unexpected and prolonged need for long-term care is so vitally important.
If you want to learn more about the Hybrid Life Insurance/Long-Term Care Combinations plans, let’s talk about it. I’d be happy to put my teacher’s cap on for you to give you a solid understanding.
Lastly, if you currently own traditional long-term care insurance, allow me to analyze the benefits of your current plan to make sure that you know exactly what it is that you own and what the current benefits are. You may want to look at adding a hybrid plan to it to fill the coverage gaps that may exist and also create a new “automatic return of premium” scenario in the event that you end up never needing long-term care. Also, if you still own any old life insurance policies that have large cash values in them, it would behoove you to allow me to analyze them as well, because they could possibly be converted into a Hybrid Life Insurance/Long-Term Care plan.
You can reach me anytime at (585) 721-2385 or send me an email note at [email protected].
Please lean on my knowledge and expertise on this topic. I can be a tremendous informational resource for you and can help bring peace of mind to this issue for you and your family.
About Bill
Bill Monte is the president of The Estate, Legacy & Long-Term Care Planning Center of Western NY, with 33 years of experience in the financial industry. Bill is the leading legacy and long-term care planning expert in the area and has helped hundreds of Rochester area residents implement personalized plans that help solidify their legacy and long-term care planning. As an independent financial professional, Bill prides himself on putting his clients first and always working in their best interest, designing plans that are tailored to each person’s specific financial situation and goals. Bill holds multiple professional designations, including Chartered Financial Consultant® (ChFC®), Chartered Life Underwriter® (CLU®), Long-Term Care Professional (LTCP®), Certification for Long-Term Care (CLTC®) and Retirement Income Certified Professional (RICP®). To learn more about Bill, connect with him on LinkedIn or schedule a free exploratory discussion by contacting him at (585) 721-2385 or email at [email protected]. You can also register for his recent webinar entitled “How Your Kids Can Inherit Your IRA 100% Tax-Free” by clicking here.