Some higher net-worth individuals feel that the responsible solution to paying for long-term care that they may need as they age is to self-insure the cost. This is puzzling because even the most affluent couples usually insure their homes; their automobiles, boats, and planes; and their lives. They insure jewelry and art. They maintain liability insurance. Why omit coverage for long-term care? After all, nearly everyone will need long-term care sometime.
Long-term-care insurance costs only a few thousand dollars per year and it has significant tax advantages that lower even that modest cost. Even if you can afford to pay for the cost of long-term card, why would you want to?
A tax-qualified long-term-care policy is a bargain that saves on taxes while insuring your estate for endeavors that matter—your family, preservation of your life style, and philanthropy.
Those who self-insure their long-term care needs consumer assets that would otherwise be included in their estates. Long-term care costs rise each year and more than 70% of Americans 65 and older will need long-term care services so better planning is needed to protect assets.
Americans are living longer and this increases both the likelihood of needing long-term care and the cost of that care. Affluent couples who purchase long-term-care insurance mitigate both of these risks.
The cost of home care or assisted-living facilities can easily exceed $100,000 per year today. In 15 to 20 years, when today's 60-year-old is most likely to need care, the costs could easily be double or triple today's costs.
The real cost of long-term care is not the actual cost, but the opportunity cost. In order to pay out of pocket, individuals will have to retain liquid assets in their accounts.
These assets, which would have been used to pay for extended care benefits years earlier, are now stuck in the individual’s estate, which are subject to, income tax, capital gain taxes, or estate tax. As the years go on, it is increasingly difficult for an individual to transfer assets out of their estate.
With an estate tax of up to 55%, it may be beneficial to pay the insurance premiums and transfer the extra money out of your estate at an earlier date. Fortunately for consumers, long-term care providers have been innovating on products and there are now more and less costly ways of purchasing extended care benefits.
Depending on how much you’re willing to pay for the insurance now, the return of the premium option ranges from just a small portion, to the entire premium.
Even if you can afford the $7-10 thousand per month in health care services and increasing amounts with inflation in future years, for a few years or many years, how would you feel if you had to spend hundreds of thousands of from your income or assets which maybe allocated for other reasons?
What Extended Care Benefits does is provide a tax-qualified stream of income so it does not disrupt a person’s life style.