Protect more with less
Exceptional new tax advantages plus significant product improvements make asset-based insurance plans an attractive risk-management tool
► Click here for our just-released, complimentary special report: The Consumer’s Guide To Asset-Based Long-Term Care Insurance
Why You Should Consider Asset-Based Long-Term Care Insurance
Asset-based plans have been around for over 20 years, but only recently have they gained in popularity and prominence. Why is that – and why should you consider one?
Basically, there are four reasons:
- There is a growing need for long-term care services and private long-term care insurance to pay those services.
- While there is a growing need for private insurance to cover long-term care needs, consumer confidence in traditional long-term care coverage is declining.
- Competition among asset-based insurers has increased and, as a result, there have been dramatic ‘consumer-friendly’ improvements in the policies offered.
- A new federal law went into effect last year that created exceptional tax advantages to owners of asset-based long-term care insurance.
One could easily conclude that these four events – all happening at the same time – have created “the perfect storm.” Demand for quality asset-based plans is starting to boom.
A Growing Need For Long-Term Care Services And Reliable Insurance
It’s undisputable: There is an increasing need for long-term care services (i.e., the actual care itself) and for private insurance to help cover the exorbitant cost of that care. If you haven’t secured coverage yet – or decided to self insure – this may be your answer.
Fact: The ‘baby boom’ is now the ‘senior boom.” That’s because the number of Americans age 65 or older is exploding. Experts predict that segment will grow by 80 percent, reaching 55 million by 2020 and 71 million by 2030.
Fact: Both the likelihood and cost of long-term care are too high to ignore. Approximately three out of four Americans will need some form of care during their lifetimes – and it doesn’t come cheap. The national average for a private room in a facility is $80,000 per year, not much less for quality home care.
Consider this: If you were to need long-term care for just three years (which the odds say is likely the older you get), you could be looking at a $240,000 expense out of pocket. And that’s based on today’s figures. Those expenses are projected to triple in the next 20 years.
Still not convinced this affects you? Then ask yourself these important questions:
- » If you did need long-term care, how would you pay for it?
- » Which assets would you cash in first?
- » What would be the tax consequences to liquidate those assets prematurely?
- » How would this affect those closest to you?
Let’s face it: Long-term care represents one of the largest financial risks facing older Americans today. Without affordable, reliable, private long-term care insurance, your entire retirement security could be vulnerable to an unexpected illness or accident.
Consumer Confidence In Traditional LTC Insurance Is Plummeting
While there is a growing need for private insurance to cover long-term care needs, consumer confidence in traditional long-term care coverage is plummeting.
There are serious concerns within the industry regarding the affordability, sustainability and profitability of traditional LTC policies. The ability to design, price and underwrite stand-alone coverage so that it remains stable and cost-effective over time is being questioned as we speak. Carriers have been hurt by consistently low interest rates, consistently high persistency rates (i.e., the number of policy owners who keep their plans for life) and higher-than-expected claims.
The result? Leading traditional carriers have raised premiums on new policies from 25% to 40% in the last five years alone. Many are hiking rates on existing policy owners, one up to 40%. Worse still, certain industry leaders have chosen to get out of the business altogether. These recent, unsettling events have served to heighten the degree of skepticism many Americans already have for long-term care insurers in general.
The end result of this increasingly unsteady marketplace for traditional LTC insurance (which was already unpopular) is the demand for a safe, sensible and cost effective alternative – one that is appealing to both the consumer and the insurer. Asset-based long-term care plans meet those criteria. As a result, demand for these products is beginning to boom.
Major Improvements Have Been Made Recently To Asset-Based Plans
Combination plans that link life insurance with long-term care coverage have been around for over 20 years. But they haven’t always been that competitive. That has all changed recently.
Responding to consumer demand, there has been a surge in competition for asset-based policies. That competition has resulted in significantly improved products. Today’s asset-based life and LTC insurance policies can easily compete with traditional standalone contracts – and yet at the same time offer something unique in the form of life insurance.
Interestingly, the two largest providers of traditional LTC coverage have both introduced an asset-based policy within the last few years. What does this tell us? It tells us that insurers knowledgeable and experienced in traditional long-term care coverage are now interested in the asset-based concept. That’s good for consumers.
Below are some of the recent and most important improvements the industry has made to combination life and LTC insurance plans:
- The long-term care insurance portion has seen the most improvements, with carriers now offering lifetime/unlimited coverage; higher benefit periods; higher benefit amounts; inflation protection options; expanded home-care services; first-day coverage for care at home; international coverage; fewer exclusions; and more.
- The life insurance portion has improved too, with carriers now offering higher death benefits and a guaranteed residual death benefit, all while charging less because people are living longer.
- There’s a guaranteed return of premium if you change your mind with all leading policies – and one leading company offers that for as long as you own your policy.
- The health approval process has been streamlined and simplified, with many insurers now able to give applicants an answer in one or two weeks. Plus, with some top companies, there is no physical exam or the need to submit medical records. Additionally, some companies will now look at applicants with health issues that used to cause an outright declination. And the paperwork that needs your signature when you apply has also been shortened and simplified, making the application process easier and quicker.
- You may be eligible to receive premium discounts if you’re married or in a committed relationship and/or are in above-average health.
New Law Offers Owners Of Asset-Based Plans Exceptional Tax Advantages
In January 2010, a new federal law called the Pension Protection Act (PPA) went into effect that created excellent tax advantages for purchasers of asset-based LTC insurance plans. The changes were both substantive and positive.
The two main ‘taxpayer-friendly’ changes made by the new law are:
- Owners of existing traditional life insurance or annuity contacts can now exchange them for an asset-based contract on a tax free basis. They can even trade them for a standalone long-term care policy.
- Owners of existing traditional life insurance or annuity contacts can use cash values within their contracts to either purchase long-term care coverage or pay for long-term care expenses – both on a tax free basis. And keep in mind, thanks to earlier tax laws, life insurance benefits are tax free and long-term care benefits – whether paid from an asset-based or traditional policy – are also tax-free.
Without question, the PPA has opened up a number of new risk-management strategies you’ll want to consider, especially if you’ve decided to self insure. Now, leveraging your financial exposure to future long-term care costs is much easier and more practical. Asset-based plans, now ‘endorsed’ by the federal tax code, allow you to get more for your money and do more with less.
At RetirementGuardian, we’ve carefully studied this new tax law and are standing by ready to educate you on the varying asset-protection strategies available today – and to advice you on the one best suited for you and your family. To speak with a knowledgeable, licensed representative today, please call 800-341-0297.
For a list of the tax advantages of asset-based plans and the Internal Revenue Codes that correspond to each, please click here.
For a free, no-obligation quote, please call 800-341-0297 or complete and submit the FREE Quote form on this page.
With No Obligation
Of An Existing Policy
According to the U.S. Department of Health & Human Services, the demand for long-term care is at an all-time high. So, too, is the cost. Consider these facts:
- Americans 65 or older will grow by 80 percent to reach 55 million in 2020 and then to 71 million by 2030.
- 75% of people 65 or older will eventually need some form of long-term care.
- By 2020, one in three workers will be faced with providing long-term care for their baby boomer parents.
- The average cost of a one-year stay in a nursing facility is just over $80,000 today and can be as high as $100,000 in some areas.
- 75% of single Americans and 50% of couples spend almost all their retirement savings in the first year of living in a nursing facility.