Long Term Care Insurance - Peace of Mind and Protection. As we have mentioned in prior newsletters, we estate planners typically recommend Long Term Care ("LTC") insurance for clients who want to protect their assets from the drain of long term care, whether provided in a nursing home or in the patient’s own home. The principle objections or obstacles to the purchase of long term care insurance is: (1) the cost; or,(2) bad health.
We have pointed out in previous newsletters that both cost and health conditions may be mitigated by single premium life insurance policy with an LTC rider. That is, excess liquid funds such as CD’s can be converted into an insurance policy with LTC benefits and a death benefit for family, in the event the LTC benefit is not needed.
Special Incentive. A recent article in the insurance section of the MainStreet.com newsletter of March 3, 2009 has called our attention to a special provision of the Pension Protection Act of 2006 ("PPA") that permits the conversion of existing life insurance policies or annuities to LTC insurance effective January 1, 2010 without income tax penalties.
Built-in Tax Penalties. Many clients have life insurance policies, often paid up, which have a potential income tax cost on the income build up in the policy, in the event the policy is cashed in during lifetime. Similarly, annuities - variable, fixed or combination - often have a built-in tax liability on accumulated income. Being able to acquire LTC insurance with a lump sum premium (the cash value of the life insurance policy or annuity) could be a good alternative for clients with existing contracts who want to protect their estates against the cost of long term care, whether home bound or nursing home.
New Products. MainStreet.com points out that insurers are currently designing policies to meet the demand for the tax free exchanges permitted by PPA. Heretofore, a single premium life insurance with LTC benefit has been a popular option for clients who have liquid assets and are young enough or healthy enough to qualify for a single premium policy.
Keep in touch with your insurance advisor to stay informed of new products which may be offered later this year with LTC benefits that are attractive. These products may mirror some of the special features of existing single pay policies such as return of premium and/or death benefit in addition to LTC coverage. MainStreet.com estimates that new policies will probably provide for single premiums of $50,000-$200,000, depending on the benefits chosen, age, etc.
Why LTC Insurance? Long term care needs are a fact of life for many of us as we live longer. Statistics show that of people reaching the age of 85, 50% will have some form of mental deficiency such as Dementia, Parkinson’s, Alzheimer’s, or related brain dysfunctions. While the term "nursing home" has bad connotations, my personal experiences have been that nursing home care may not only be a necessity but a blessing for both the patient and family members. Care giving chores for dementia patients can become onerous for individual care givers and beyond the abilities of many. Many patients do better in a nursing home with continual company and attention as opposed to many hours of solitude in their own surroundings.
Moreover, we have seen the benefits of long term care insurance in helping patients to remain at home as long as possible by providing a care giver with much-needed assistance.
Many clients recognize the benefits of long term care insurance but are either too old or unhealthy to qualify or, alternatively, state that they cannot afford the premiums. We advise clients to investigate LTC coverage before age 70. The new tax free exchange provisions of PPA may provide just the incentive many people need to acquire LTC coverage on a tax advantaged basis and thereby protect assets from the devastation of nursing home costs, should an extended period of nursing home care be required.
If you have any questions concerning long term care insurance, Medicaid planning or your estate planning, please contact Jim Modrall or any of the attorneys listed below.
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau and David H. Rowe at (231) 941-9660
©BRANDT, FISHER, ALWARD & PEZZETTI, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional advice.
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