your strategy for long term care

[Octogirl]

I am educating myself and DH on options for long term care.

I ve read about Whole Life life insurance policy with a Continuation of Benefits (COB) Rider. We can make a one-time deposit (Tax free, using tIRA funds) into a life insurance contract with the COB rider and receive a death benefit for our heirs as well as a lifetime long-term care benefit.

Does anyone here have experience with this type of policy ?
Are my assumptions correct re:Tax free use of tIRA for payment ?
I would like to hear from others your strategy for long term care.

Also - I wonder if the Biden Admin will change tax policy on LTC -
We are mid 60's and thankfully in good health but one never knows what can happen in life
Thanks

 

[Midpack]

We’re planning on self funding LTC if necessary. There have been quite a few discussions here, just one fairly recent that might interest you https://www.early-retirement.org/forums/f38/who-has-long-term-care-insurance-104487.html

 

[Lewis Clark]

We are self-funding for long-term care. By the time we looked into it, at ages in our late 40s, it was cost prohibitive for us.

 

[pjm-7]

Are you sure about moving tIRA money to life insurance? I doubt that this is a tax-free move. IRS publication 590-A addresses permitted rollovers from tIRA's. The rollovers are permitted to other IRA's, Simple-IRA's, SEP-IRA's, Government 457(b) plans, 403(b) plans and Qualified employer plans.

The IRS publication 590 is currently being revised and is not currently available. I took the above information from the December 2018 edition. If an insurance agent is trying to sell you a policy that by taking a "tax-free" withdrawal from an IRA I would be very suspicious.

 

[Ready]

We are self funding. MIL has a LTC policy which we have been put in charge of managing and so far they have not paid a dime in spite of the fact that she has had some serious health issues requiring extensive amounts of assistance. And the premiums keep going up each year. It feels like a complete scam.

 

[rt-texas]

We are self funding. MIL has a LTC policy which we have been put in charge of managing and so far they have not paid a dime in spite of the fact that she has had some serious health issues requiring extensive amounts of assistance. And the premiums keep going up each year. It feels like a complete scam.

Same issue for my sister and I. Mom paid for LTC for 10-11 years and even when she was terminal and in hospice care they refused to pay.

$400,000 set aside we don't consider in our overall portfolio valuation or SWR.

 

[rk911]

Plan A for me...a LTC insurance policy backes by our net worth. my wife cannot get LTC so it"s cash flow from the get-go.

 

[audreyh1]

We’re planning on using a CCRC. It will be self-funded.

 

[Onward]

Self-fund. I don't trust the policies, the premiums, or the industry.

 

[RetireeRobert]

My wife and I bought a single pay, combined insured, hybrid life policy with LTC benefits from One America/State Life company four years ago. It is a "two insureds" policy which provides the LTC benefits to either one, or the other, or both of us until the policy limits are reached. It also has a 3% inflation rider which we pay annually, and can quit paying for that at anytime if we feel we are adequately covered for our life expectancies. The policy pays up to $7000 a month LTC benefits, and will cover home care as well. It has a 60-day elimination period. The life insurance pays upon second to die, and amount is reduced by any LTC benefits paid. Policy was issued based on "combined age" (i.e., wife was 62 and I was 69 at issue, so premium based on combined age 64. Paid $121,000 up front, life insurance amount is $233,000. So, if LTC benefit is never used, our kids get the $233,000! So, I figured for peace of the LTC coverage and "refund" feature to our family via life benefits, the insurance company gets to use/invest our upfront premium. Fair deal!!

 

[DrRoy]

Self-fund. I don't trust the policies, the premiums, or the industry.

+1

 

[The Cosmic Avenger]

We are self funding. MIL has a LTC policy which we have been put in charge of managing and so far they have not paid a dime in spite of the fact that she has had some serious health issues requiring extensive amounts of assistance. And the premiums keep going up each year. It feels like a complete scam.

Same issue for my sister and I. Mom paid for LTC for 10-11 years and even when she was terminal and in hospice care they refused to pay.

$400,000 set aside we don't consider in our overall portfolio valuation or SWR.

Can I ask who the problem policies are with? I signed up for LTC insurance at 27 because my employer paid part of it, my payment was less than $20/month. It's gone up, but so has the coverage; since I knew the power of compounding I purchased the inflation protection, 4% per annum. Mine is with Unum Provident, I'm hoping that if my spouse ever needs to use it for me that it will be a help, not a pain.

 

[racy]

+1

another +1

OP, as you're researching, I suggest getting a good handle on exactly what you're insuring for. i.e. How long do people typically need LTC? How expensive is it in your area? Do you really need to buy insurance (vs. saving the premium cost & self insuring)?
A good definition of the problem often leads to the best answer.

 

[pb4uski]

Are you sure about moving tIRA money to life insurance? I doubt that this is a tax-free move. IRS publication 590-A addresses permitted rollovers from tIRA's. The rollovers are permitted to other IRA's, Simple-IRA's, SEP-IRA's, Government 457(b) plans, 403(b) plans and Qualified employer plans.

The IRS publication 590 is currently being revised and is not currently available. I took the above information from the December 2018 edition. If an insurance agent is trying to sell you a policy that by taking a "tax-free" withdrawal from an IRA I would be very suspicious.

I had a similar reaction... at first I thought that the tIRA might hold and own the life insurance policy but found information that an IRA cannot own a life insurance policy.

But those clever insurance agents have found a workaround... you buy a 20-pay life insurance policy with an LTC rider and simultaneously the tIRA uses tIRA money to buy a 20 year annuity certain with annual benefits equal to the 20-pay life insurance policy premiums. The annuity benefits are paid directly to the life insurance company and the annual benefit is treated as a tIRA withdrawl.

Option 1: Convert Your IRA into LTC Insurance with a Tax-Qualified Annuity

If you invest in a tax-qualified annuity that makes internal distributions to an insurance carrier, you can indirectly pay for long-term care coverage using IRA money without additional tax penalties. Here’s how the process works:

Step 1: Apply for 20-pay life insurance with LTC features
Apply for a 20-pay life insurance plan with an LTC rider, which can accelerate the death benefit to pay for long-term care. This policy will be funded with tax-qualified annuities that make annual distributions to the insurance policy over a 20-year period. After you apply, complete the underwriting process, and receive approval, you will be given a quote for the annual premiums required for this plan. The premiums may be higher than those for term insurance, but limited-pay plans offer lifetime security.

Step 2: Apply for IRA-based annuity plans to fund the policy
The second step is to determine the up-front cost of an IRA-based annuity where the annual dollar amount of income is the same as the insurance premiums, over a period of 20 years. Apply for this annuity type and include instructions for the company to directly credit your 20-pay life insurance plan with the annual gains from the annuity.

Step 3: Use a direct transfer of IRA funds for annuity premiums
Directly transfer funds from your IRA to purchase your 20-year annuity. By paying an equal dollar amount directly into your life insurance policy, this annuity will fund your insurance coverage and keep it active for 20 years, after which the LTCi policy is paid in full.

You will receive IRS tax form 1099-R from the annuity company every year on the amount of taxable IRA money moved into the life insurance policy. While you still pay income tax on this amount, the payout and benefits from the policy will be tax-free for you and your beneficiaries. After you’ve made premium payments over a 20-year period, the death benefits will apply for your entire lifetime.

https://www.elderlawanswers.com/how-to-use-ira-savings-to-buy-long-term-care-insurance-16150

While I'm still not keen on actually doing this and we plan to self-insure, I have to admit that it is clever.

 

[twaddle]

Plenty of exercise and protein. A DNR order. Living in a single-level home. That's about it.

 

[Lucie]

We have LTC policies which are unnecessary given that we could self-insure, but after my father had a fatal stroke 1 month after his 65th birthday and my mother passed at 53, I sleep better knowing that our assets won’t be drained if I end up in a nursing home.

My question is how much should I reduce the daily amount of coverage to be worthwhile? My renewal came with a letter indicating that the price is increasing again and we can reduce the daily coverage (currently $375/day) or reduce coverage from 3 years to 2 years. By reducing the coverage we can semi-self-insure but still sleep well. Recommendations?

 

[pacergal]

LTC was available when I was working, but too expensive over long term
I have looked at it again now retired, and came to the same conclusion.
We plan on self pay, Plan to either sell home and move to CCRC at a later date, or sell home and rent apt for other spouse. Proceeds from sale of house would/should provide enough $.
Non affected spouse would still have income from pension/SS/investments to live from.

 

[38Chevy454]

Self-funding, no LTC insurance.

 

[rt-texas]

Can I ask who the problem policies are with? I signed up for LTC insurance at 27 because my employer paid part of it, my payment was less than $20/month. It's gone up, but so has the coverage; since I knew the power of compounding I purchased the inflation protection, 4% per annum. Mine is with Unum Provident, I'm hoping that if my spouse ever needs to use it for me that it will be a help, not a pain.

With my mom the Ins company sent a nurses aid to assess her. She was still in her home with full time care and officially under hospice care. Terminal cancer with no more treatment only pain mgt and quality of life mgt. Insurance company (major US company) wrote back that she was denied because they didn't think she met "their" requirements of needing full time or LTC. We could appeal. We did.

This was August 2019. Thanksgiving week she was admitted full time into a private care facility. She passed December 16th.

After she had passed we received a letter to the appeal saying she was still denied. Good call, she was dead!

Plan had 90 day wait period. Discussed with attorney and decided not to pursue since at most we could push for would be two months. She paid over $80,000 into this and was so proud it would help cover her end of life and not burden us. We never told her it was denied.

Biased...big time. So wife and I have $400k set aside for LTC and I know I can access when and if needed. If we don't use it, it's earmarked for a specific charity we chose.

 

[Finance Dave]

Can't address your specific question about that one type of policy, but...

We bought LTC policies at ages 56/59 a few years ago through LifeSecure. We are in Indiana, which offers "Partnership" policies. These offer the benefit of not requiring you to spend down to the standard Medicaid levels before being eligible for Medicaid. This sounded very attractive to me, so we started out leaning this way. However, Indiana law requires that such a policy have inflation protection of a certain amount...and we found those policies to be EXTREMELY expensive.

Therefore, we opted for a less-expensive but maybe riskier choice. We "overbought" coverage...about 4x what would be needed today. We were able to buy this coverage at significant discount to a Partnership policy (IIRC about 40% less). The risk is that inflation may eat up our coverage. We do have the option every 3 years of buying more coverage. We are paying about $550/mo for $700,000 coverage each, monthly benefit of $12k, 90 day benefit wait period. The policies have a shared benefit rider...so if I don't use mine it can be applied to her and vice versa. Benefits are not taxed, and we are able to deduct the premiums (up to a limit) since I have self-employed income. Once I close the business I'm not sure what current tax law is but used to be deductible only if over 10% of AGI or 7.5% if over 65.

We were on the fence about self-insuring. My research said "Really rich can self-insure, and low NW clients don't need it because they have little to protect." We are not "really rich" nor are we low NW. I can certainly understand the opinions of many on here who are self-insuring.

The other downside of a Partnership policy is that if you move to another state after holding the policy for a number of years, you need to ensure the new state has a reciprocity agreement where that state will honor the partnership nature of the policy. We plan to move to another state in the future, so this was a consideration for us.

 

[harllee]

We’re planning on using a CCRC. It will be self-funded.

Same for me.

 

[Octogirl]

Thank you all for the interesting replies.
I respect the experience and knowledge shared in this forum.

Racy - yes, we live in a mid COL area We want to plan for 2 years of NH coverage.
We re planning for costs of $300,000 - in 2021 dollars

pb4uski - Thanks - Yes, I read about a 20-pay life insurance policy with an LTC rider and simultaneously the tIRA uses tIRA money to buy a 20 year annuity certain with annual benefits equal to the 20-pay life insurance policy premiums. I'm uncomfortable with this plan. So we are going to self fund and may go to a CCRC

My 92 year old mom (widow) has been in a CCRC for 12 years and it has worked out well. She needed skilled care in 2018 for 3 months - no problem and no bill !

Finally, I spoke with a nursing home social worker today re options (she s a friend of friend) who also described some experiences similar to rt-texas in which families who had paid premiums for years then found that they were denied coverage or had long conflicts trying to appeal.

I consider myself "educated" now and we will self fund and/or go to local CCRC.
Thank you for the replies.

 

[teejayevans]

Can I ask who the problem policies are with? I signed up for LTC insurance at 27 because my employer paid part of it, my payment was less than $20/month. It's gone up, but so has the coverage; since I knew the power of compounding I purchased the inflation protection, 4% per annum. Mine is with Unum Provident, I'm hoping that if my spouse ever needs to use it for me that it will be a help, not a pain.

But will it keep going up, especially as you get older?

 

[Ready]

Can I ask who the problem policies are with? I signed up for LTC insurance at 27 because my employer paid part of it, my payment was less than $20/month. It's gone up, but so has the coverage; since I knew the power of compounding I purchased the inflation protection, 4% per annum. Mine is with Unum Provident, I'm hoping that if my spouse ever needs to use it for me that it will be a help, not a pain.

MIL is with Genworth. But I think you will find similar stories from many on the forum who have had similar experiences. The basic problem with LTC plans are twofold:

1) They get to decide if you meet the criteria for being eligible, and the criteria is hard to pin down. There is a lot of wiggle room for them to decide you are not eligible.

2) They get to decide how much the plan is going to increase each year. In theory there is some formula based on prior year’s losses, but at the end of the day they calculate what it is and send you a bill. You either pay the increase each year, reduce your coverage, or cancel the policy and lose everything you put into it.

So they have all the power in the contract and you have the choice to pay the premiums and hope it will be there for you or back out and lose what you put into it. It’s so one sided that it’s just a bad deal for most people.

 

[The Cosmic Avenger]

But will it keep going up, especially as you get older?

Actually, I went back and looked, and the increase was as a result of my employer not paying a portion of the premiums any longer. They used to pay for the most basic plan, and I paid $20/month for the additional coverage, but that change happened right around the time I was leaving that employer, so I wasn't paying as much attention as I usually do to the fine print. I don't think the premiums can ever go up, but the coverage has continued to outpace inflation.