Long-Term Care Insurance

Financial Perspectives

Asset-Based Long-Term Care May Be Your Best Option

By Julie Cook Elsea

“Hope for the best, prepare for the worst.” This is a phrase many learned at an early age from parents or even grandparents. From Boy Scouts to basic training, being prepared can make the difference between failure and success. This also holds true when preparing for medical expenses down the road. The chances of success for a family’s financial plan may be increased by adding some type of long-term care insurance. With baby boomers’ life expectancy averaging 79 years old, up from 63 in the past, preparing for long-term medical expenses is crucial.

While it is easier to avoid the conversation of preparing for care, today’s choices in long-term care insurance (LTC) make it easier than ever. For generations, traditional long-term care policies have been the go-to in preparing for potential expenses. These policies are still available, and in numerous circumstances most appropriate. However, in recent years a new type of long-term care insurance has surfaced and is providing families more control in their planning. 

Asset-Based Long-Term Care Insurance

Comparable to traditional long-term care policies, which provide a pool of money in the future to be used for LTC expenses, asset-based policies provide a similar benefit. A pool of money is paid out tax-free from investments, often higher than the original investment, to cover long-term medical expenses in the future. These expenses can range from the occasional help at home to a full-service nursing home. Compared to traditional long-term care insurance, multiple differences may make asset-based long-term care insurance (ABLTC) more attractive for a family’s financial plan. The ABLTC coverage has not only removed the risk of “use it or lose it” associated with LTC policies, but it also provides clients control over their own plan and avoids future financial surprises. Traditional long-term care, while often considered a more cost-effective way to purchase LTC insurance, carries the continued risk of increased annual premiums for the life of the policy. Using an ABLTC policy, this risk is eliminated. The client chooses the amount of funds he/she would like to invest in their LTC plan. The policy, if approved by underwriting, is written for that contractual premium amount. No surprises down the road, and no risk of ever needing to pay in more once the agreed upon premium has been paid.

One of the more attractive features of traditional LTC insurance is the affordability of premiums and being able to manage cash flow and cover those premiums. A customer can do that as well with the ABLTC. Most companies offering ABLTC policies offer the option to spread the one-time premium over multiple annual payments – sometimes up to 10 years. This helps make this type of policy even more attractive to customers on a budget or trying to manage cash flow and still make future financial plans.

“Having a starting point, knowing the plan, and being able to share that plan with children, family members, or other caregivers can be the most valuable piece of that strategy.”

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If, for some reason, a customer decides later that an ABLTC policy is no longer right for their financial plan, most all policies offer some form of liquidation option. And, while a full refund of the original premium may not be available, a significant amount of the premium may be refunded to the owner. A death benefit is provided with these types of policies as well. If a customer passes away without ever needing to use the pool of money provided for LTC, the original premium, and in some cases more, is paid to the designated beneficiary in the form of a death benefit.

Not surprisingly, ABLTC insurance policies are becoming more attractive to clients. Rather than pulling assets from a financial plan to prepare for future medical expenses, assets are simply earmarked as such and remain part of the client’s portfolio.

In the past, self-insuring has been the plan of choice for many to cover future long-term care expenses. In this scenario, instead of working through an insurance company, you set aside money to pay for long-term care expenses as they arise. While often a very viable alternative to LTC insurance, self-insuring provides no real path for family members when the need arises. What has been set aside is what is available for long-term care and no more.

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Planning is Job No. 1

Regardless of what type of long-term care insurance is chosen, planning is job No. 1. Having a starting point, knowing the plan, and being able to share that plan with children, family members, or other caregivers can be the most valuable piece of that strategy. Making financial decisions can be stressful for many. Needing to do it during a time of change and adjustment is infinitely harder. Long-term care insurance can remove lots of those challenging decisions. When a family is facing life-changing decisions for a loved one, financial planning may be the last thing they want or need to think about. However, as mentioned previously, with boomers living longer and advanced healthcare allowing many to live independently longer, the potential for healthcare expenses in the future increases each year.

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Understanding Options: Taking a Step

Understanding the options and knowing what is available for financial planning is the first step toward preparing for potential expenses as you age. And, like most things, the first step is the hardest. Most clients learn the reality of the topic is much easier to discuss and explore than expected. If “hoping for the best and preparing for the worst” works well for Boy Scouts and soldiers, they may be equally prudent in financial planning.

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julie elsea

Julie Elsea is a seasoned financial advisor with a passion for helping clients and their families plan for the future. With over 33 years of experience in the financial industry and wealth management, she offers comprehensive financial services and specializes in areas often overlooked in family financial planning, such as life and long-term care insurance. Julie is proud to be a partner with the Round Table Advisor team.

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Long-Term Care Insurance Products may not be suitable for all investors. Surrender charges may apply for early withdrawals and, if made prior to 59 ½, may be subject to a 10% federal tax penalty in addition to any gains being taxed as ordinary income. These policies have exclusions and /or limitations. The cost and availability of Long-Term Care Insurance depend on factors such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of Long-Term Care Insurance.  Guarantees are based on the claims paying ability of the insurance company. This information is intended to be educational and is not tailored to the investment or insurance needs of any specific individual. Please consult with a licensed financial professional when considering your insurance options.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Round Table Advisors is not a registered broker dealer and is independent of Raymond James Financial Services. Any opinions are those of Round Table Advisors and not necessarily those of Raymond James.

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