Becker & Associates

Using your Life Insurance for Long Term Care Expense:

Life Insurance policies are ever changing to meet the needs of our ever changing society.  All the buzz is now on Long Term Care coverage, but if you've ever gotten a quote you know it is not cheap!  Also, what if you never need it?  Once you've paid the premium to the carrier for a Long term Care policy, it's GONE and you have nothing to show for it.  Though there are benefits to having a comprehensive LTC (Long Term Care) policy...you can spell out the benefits in a more precise way, add on riders for COLA (Cost of Living Adjustments), etc, but the fact remains that it's expensive and if you never use it, it's money down the drain. 

Do not mistake my message to mean LTC is not important!  It is VERY important...in fact more important than ever, there are just more creative ways of getting it these days. 

Using a Life Insurance policy with a guaranteed Death benefit and adding a 4% LTC rider is a very interesting solution.  Let's use this example:  You are healthy enough to purchase a $500,000. face amount and you become ill enough or have an accident and meet the requirement to be able to tap into your policy for its LTC benefits (the requirement for ALL LTC policies is just about the same, whether a policy or a rider) is being unable to do at least 2 of the ADLs - Activities of Daily Living).  Using a $500,000. Death Benefit policy with the LTC rider of 4% per month = $20,000. per month available to you.  

Per the IRS, at this time the maximum amount you may receive from your policy on a tax free basis is $330 per day or $9.900. per month.  This is because the LTC benefit is essentially considered getting your Death benefit early.  Depending on your needs, whether it be paying for a facility, paying for homecare, paying a relative to take care of you, you may decide to take only the tax free portion from your policy, but the full 4% is still available. 

Then let's say you get better and return to life as normal in 6 months, you have taken or "used" (at $9,900. mo.) $59,400.00 of your Death Benefit thus reducing your policy's Death benefit to $440,600.  This amount will be passed on to your heirs tax free OR be available for another round of LTC usage.

If you are 70 1/2 years old and are receiving "RMD"s (Required Minimum Distributions) from retirement funds that you don't really need, you can turn taxable income into tax free money using this strategy!

In summary, you've used tax free death benefits to pay for your Long Term Care needs and the money you've invested in your Life insurance is still there! 

Example - A $500,000. Policy would cover the IRS maximum monthly LTC payment of $9,900. for 4.2 YEARS!

Some Statistics for the USA:  For someone with a 90-day Elimination Period, the lifetime chance of someone buying coverage at age 60 and using policy benefits was 35%. So, 35% will use their coverage and 65% will not. As you might assume, the decline is because during those first 90 days, some people will recover and some will die.

Here is some meaningful information on nursing home lengths of stays as published in the Association's 2008 LTCi Sourcebook. Remember, that most long-term care is actually received at home but there are still fewer statistics about home care utilization for "long-term care" needs. When we get relevant ones we will publish them for consumers to read.  Notice that the length of time that anyone stays in a Nursing Home is well under five years!  We must consider the time that most people need in home care too, please see "Long Term Care Info & Statistics" blog for more info.

Average Length of Stays (Nursing Homes)

5 years or more - 12.0%

3 to 5 years - 12.0%

1 to 3 years - 30.3%

6 to 12 months - 14.2%

3 to 6 months - 10.0%

Less than 3 months  - 20.0%

Average Length of Stay in Years

Female - 2.6 years

Male - 2.3 years

Married - 1.6 years

Single / Never Married - 3.8 years

Widowed - 2.3 years

Divorced / Separated - 2.7 years