(AKA Hybrid or Linked Benefits)
Unlike traditional long-term care insurance, asset-based plans pay you or your family back if you never use them. This unique feature eliminates lost premiums for those who never end up in an extended care situation.
The benefits for long-term care coverage are tax-free and you have many design options such as lifetime benefits, inflation riders, and joint policies.
Asset-based plans can be funded in a single deposit or a series of payments over time. Payment options include 5, 7, 10 and 20-payment plans which allow you to establish a fully paid-up policy in a time frame that fits your budget.
Here’s How You Can Fund an Asset-Based Plan
Husband, 74, and Wife, 72, make a single deposit of $270,788 into their plan and pay a guaranteed level annual payment of $2,647 for a continuation of benefits rider. This provides each of them a monthly benefit of $8,000 for long-term care. This policy will last a minimum of 50 months if both are on claim and drawing out the maximum benefit of $16,000 per month. They may cancel the plan at anytime for the cash surrender value and there is a second-to-die death benefit of $400,000 that will be paid to their estate if they never use the plan for long-term care.
Note: Here is a great example of an alternative to self-insuring. Although these clients are well into their 70’s, this plan provides great protection should they need care. This design was chosen for the flexibility this plan provides. The plan is made up of two parts. Part 1: The initial deposit purchased them $400,000 of benefit that is guaranteed to come back to them either as long-term care, death benefit, or the cash surrender value. Part 2: The continuation of benefits is a second pool of money that can be used if Part 1 is exhausted for care and is available for a guaranteed level payment of $2,647 per year. This premium will stop once client is on claim. Part 2 can be cancelled at any time without affecting Part 1. This gives the clients maximum protection if they need it early on but also allows them flexibility in case one of them passes away and they don’t need the full amount of coverage. The death benefit and cash value growth are guaranteed.
Husband, 65, and Wife, 62, make a single deposit of $210,000 using retirement funds and pay a guaranteed level premium of $1,292 per year for a continuation of benefits rider. This provides them with a joint policy that can be accessed up to $8,163 per person per month with a total coverage of $816,300 for long-term care. The initial deposit was drawn out of a 401k retirement account and will be taxed over equal installments for 20 years.
Note: This plan used qualified funds, meaning taxes have not yet been paid on them. The advantage of this plan is they get the immediate long-term care and death benefit that comes from the plan on day one. However, they will be taxed on their withdrawal from the retirement account over 20 years. The funds came from the husband’s account but will create a joint policy so both are covered. This will also count as required minimum distribution when he reaches age 70 ½, meaning he will be forced to withdraw less from his retirement account to meet the RMD requirements. This plan offers many advantages and uses provisions in the Pension Protection Act to provide additional tax advantages.
Male, 84, makes a single deposit of $100,000 into his plan. This provides an immediate long-term care benefit of $298,845 which can be used over 6 years. The client has access to his cash value and can withdraw up to 10% a year which will simply decrease his long-term care benefit by 10%. If the client passes away, his estate will receive the cash value minus any long-term care benefits paid.
Note: Mistakenly, advisors told this client he was too old for a long-term care plan. He wasn’t. This plan gives the client a simple 3-to-1 leverage on his money should he need care. And all the proceeds come back to him tax-free for that care. To fund this, he used savings that would have been used to pay for care if needed, but now he will receive approximately three dollars back for every dollar he put into the plan. These plans work for individuals up to age 85.