Awareness of the need to plan for the eventual need for care as our physical or mental health declines is higher than ever.
Unfortunately, many of the traditional strategies, like self-funding, using annuities or even traditional Long-Term Care insurance are flawed at best. Are they better than not having a plan? Absolutely. However, they leave most wanting more in terms of acquisition costs, liquidity, and the most frequently raised issue: What happens if I don’t end up using the benefits?
Statistically, the issue of not needing the coverage isn’t all that likely. With seven out of ten clients projected to need coverage during their lifetime , the odds just aren’t in their favor, and if we look at a couple, the probability that one of the two will need care spikes to somewhere north of 95%. Whether we care to admit it or not, most of us are going to need care. The good news is that today’s modern, asset-based Long-Term Care Insurance products address this directly with the life insurance proceeds that remain if a claim is never filed passing to the client’s beneficiary.
So, why isn’t more of this type of product sold?
Acquisition cost is a big one. Historically, asset-based products required a significant lump sum deposit. Clients seeking to plan earlier in life for this anticipated future need have too many other things pulling at their cash flow to allocate a $50,000 to $100,000 lump sum to an insurance solution. Of course, after looking at sales data and the age range when most clients acquire these products, our industry has realized this is an issue and more flexible premium payment options are now readily available. In some instances, the current crop of asset-based products can accommodate a premium structure out to age 100 or beyond. In doing so, they also address another of the big issues with other insurance solutions: Unlike traditional Long-Term Care Insurance products, these premiums are guaranteed.
|Download the Asset-Based Long Term Care Taxation Guide Here
Long Term Care Policies Under the Internal Revenue Code
If you’ve been a student of this sector, much of the foregoing is not news to you. There is, however, one last wrinkle: As is often the case in our business, we forgot something we knew about traditional Long-Term Care Insurance products. They are Health Insurance products by definition, and premium payments enjoy unique tax treatment as a result.
How unique? One of the most effective ways to acquire a Long-Term Care product is through an employer. In fact, this is the way we save the 26% referenced in this article’s title. The tax savings generated by a thoughtfully implemented employee benefit Long-Term Care Insurance plan delivers the taxation “holy grail” of:
• A current tax deduction for the business,
• No current taxation to the insured employee,
• No taxation on any of the cash inside the insurance product and
For more information, please read:
How Much Care Will You Need? | U.S. Department of Health and Human Services