By: Andrew Shamp & Meredith Dodrill, Guest Contributors
Many people know life insurance is an effective way to pass assets to the next generation. However, few people understand that life insurance can also be used to provide Long Term Care (LTC) protection, allowing a family to commit to legacy planning with a “safety valve” in case of substantial LTC needs. Using an LTC rider, a policy owner can accelerate the death benefit to offset LTC expenses. Furthermore, these benefits will generally be received income tax-free.
This solution answers two common objections often voiced by our clients when considering their LTC planning. First, the premiums on traditional LTC are not fixed. The insurance companies are able to increase the premium on policies with state approval. Second, if you are fortunate not to need LTC coverage at all or you do not exhaust the benefit under the LTC policy, your heirs do not receive any benefit upon your death. Life insurance combined with a LTC rider allows you to guarantee the premium and provide an inheritance to your heirs to the extent the LTC benefit is not used. You are able to hedge against substantial LTC costs while providing a return on investment if LTC is never needed.
To illustrate how this solutions works, assume you purchase a $500,000 policy with a LTC rider. Day one, you will create a pool of $500,000 to access in the event of an LTC event at an amount of $10,000 per month. Furthermore, when you pass away, the amount of the initial death benefit less the amount of LTC benefit used will be paid to your heirs.
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