Many retirees worry about how future long-term care costs could impact their savings, retirement income, and legacy plans. One increasingly popular strategy is using an asset-based long-term care insurance plan to help create tax-free benefits for future care needs while preserving financial flexibility.
The following example illustrates how a long-term care savings strategy may work for someone looking to protect retirement assets while still maintaining value for heirs if care is never needed.
This article was prepared by 525 Advisors LLC, an independent long-term care planning firm specializing in asset-based and lifetime long-term care insurance strategies.
Key Takeaways
- Asset-based long-term care plans can help protect retirement assets from future care expenses.
- Some plans allow individuals to reposition existing savings into tax-advantaged long-term care benefits.
- Long-term care benefits are generally received income tax-free for qualified expenses.
- Many asset-based plans include cash value growth and death benefit protection.
- These strategies may help preserve wealth for both the client and future beneficiaries.
Example: Using a Long-Term Care Savings Strategy to Protect Assets
A 65-year-old woman wanted to create a plan that could help protect her retirement savings from the potentially high cost of a future long-term care event.
Like many individuals we speak with, she wanted to:
- avoid ongoing premium payments
- preserve financial flexibility
- protect assets for her children
- maintain access to her money if circumstances changed
- create meaningful protection for future care needs
After reviewing her goals, we structured a single-deposit asset-based long-term care plan funded with $100,000.
This strategy immediately created:
- an initial long-term care benefit of $300,000
- tax-free access to benefits for qualified long-term care expenses
- long-term growth potential for both cash value and care benefits
- continued value for beneficiaries if care was never needed
How the Long-Term Care Benefits Grew Over Time
One advantage of many asset-based long-term care plans is that both the available long-term care benefit and policy cash value may continue to increase over time.
In this example:
After 10 Years
- Cash value increased to approximately $122,407
- Long-term care benefit grew to approximately $367,222
After 20 Years
- Cash value increased to approximately $149,721
- Long-term care benefit grew to approximately $449,164
These values provided the client with significantly more available resources for future care expenses than the original deposit alone.
Why Tax-Free Long-Term Care Benefits Matter
One of the primary goals of long-term care planning is helping clients avoid unnecessary financial disruption during a health event.
Without a plan in place, many retirees may need to:
- liquidate investments
- withdraw taxable retirement funds
- reduce income-generating assets
- pay taxes on gains or distributions
- place financial strain on surviving family members
Asset-based long-term care plans can help address these concerns because qualified long-term care benefits are generally received income tax-free under current federal tax law.
Tax-Deferred Growth Can Improve Long-Term Flexibility
Another feature many clients appreciate is tax-deferred policy growth.
Unlike taxable savings vehicles such as CDs or certain investment accounts, policy growth inside many asset-based long-term care plans is generally not taxed annually while funds remain inside the policy.
In this example, the policy was projected to provide approximately 2.05% tax-deferred growth while simultaneously maintaining substantial long-term care leverage.
For clients focused on protection rather than aggressive market growth, this type of strategy may provide a combination of:
- principal protection
- tax advantages
- long-term care leverage
- estate preservation
- financial predictability
Asset-Based Long-Term Care Plans Are Designed to Protect More Than Care Costs
For many families, the true value of long-term care planning is not simply the insurance benefit itself.
It is the ability to:
- protect retirement assets
- preserve independence
- reduce stress on loved ones
- provide support during a long-term care event
- maintain financial control during a health event
- create a plan that aligns with broader retirement and estate goals
In our experience helping clients evaluate long-term care options, many individuals appreciate strategies that allow them to reposition existing assets while still maintaining value for themselves or their beneficiaries.
About 525 Advisors LLC
525 Advisors LLC is a nationally recognized long-term care planning firm specializing in asset-based and lifetime long-term care insurance solutions. The firm focuses on educating clients, designing customized planning strategies, and providing ongoing service and support throughout the life of each policy. If you are exploring long-term care planning options, the first step is understanding which solutions may be available based on your health, age, and financial goals. Start here: Pre-Screen Form Or learn more: Watch an Educational WebinarFrequently Asked Questions
What is an asset-based long-term care plan?
An asset-based long-term care plan combines long-term care benefits with a life insurance or annuity structure designed to provide both care protection and retained value.
Are long-term care insurance benefits taxable?
Qualified long-term care insurance benefits are income tax-free under current federal tax law.
What happens if long-term care is never needed?
Many asset-based plans include return-of-premium provisions, cash value access, or death benefits that may pass to beneficiaries.
Can long-term care benefits grow over time?
Some asset-based long-term care policies include growth features that may increase available long-term care benefits and policy value over time.
Why do some retirees prefer single-deposit LTC plans?
Many retirees prefer single-deposit plans because they avoid ongoing premium payments while creating a dedicated pool of long-term care protection.