American Association for Long-Term Care Insurance

Like millions of Americans, Ron cares about the future and protecting his family.  The New Yorker is one of the 60 percent of Americans who possess life insurance to benefit his family should he die during his working years.  Now that he’s getting closer to retirement and his children are grown, he’s taking advantage of a little known tax provision that protects against the risk of living a long life according the director of the American Association for Long-Term Care Insurance.

“Americans have billions of dollars of single purpose life insurance purchased in their 30s, 40s and 50s have protection that no longer really serves the intended objective,” explains Jesse Slome, director of the national long-term care insurance association.  “Now as they approach retirement, the real risk to their family and loved ones results from living a long life and the financial and care-giving consequences of needing long-term care.”

Slome was speaking to leading insurance professionals sharing a real example of just such a scenario.  “We received an inquiry from a husband who is 55 years old today (2018), who we’ll call Ron (name changed for privacy),” Slome shared.   ”Over the past 25 years he purchased four different whole life insurance policies as a way of protecting his family and accumulating some cash value for his eventual retirement.”

Presently, the combined value of Ron’s life insurance death benefit was $1.2 million and his total cash value was $320,000.  Each year he paid $9,900 in premiums to maintain the coverage.  He had no long-term care insurance plan for himself or his wife and wanted information.

“Today, there are significant reasons that individuals with significant life insurance policies should investigate the benefits of a 1035 exchange,” Slome shared before referring the individual to a specialist knowledgeable in 1035 exchanges.   ”The greatest benefit is exchanging from a single-purpose policy (one that pays only a death benefit) to a dual-purpose policy (one that can pay the death benefit as well as provide long-term care insurance benefits).   In addition because people are living longer, today you can typically get increased death benefits for the same premium cost.”

Utilizing the IRS-approved 1035 exchange strategy, Ron’s four policies were converted into a single new paid-in-full (paid-up) life insurance policy with a $1,850,000 death benefit (a 54 percent increase)  In addition, the $320,000 of cash value was enough to pay the premium for the rest of his life (no future $9,900 yearly payments).

The new dual-purpose life plus long-term care policy (also often referred to as a linked-benefit LTC policy) included a rider that allows $50,000 in monthly long-term care benefits should Ron need care prior to his death.   The monies paid out would reduce any future death benefit and would last as long as funds are available.  A separate new dual-policy was purchased for his wife.

“While the $50,000 seems high in terms of today’s care costs, there are two things to keep in mind,” Slome points out.  “If he needs care and monthly costs are less, the balance remains for his future benefit.  But, since it’s likely that care won’t be needed for another 30 or 35 years when monthly costs will surely be much higher so the larger amount is planning ahead.”

“Using a 1035-exchange for a new dual-purpose life policy achieved a 54 percent increased death benefit, the availability of a monthly long-term care benefit of as much as $50,000 plus the elimination of the $9,900 yearly premium cost,” Slome summarized.  Taking advantage of 1035 exchanges is smart planning strategy today for a real risk in the future.”

Access the Guide To 1035 Exchanges

Slome is the author of the Guide To Long-Term Care Planning Using 1035 Exchanges which can be accessed for free on the American Association for Long-Term Care Insurance’s website.

The American Association for Long-Term Care Insurance advocates for the importance of long-term care planning and helps consumers connect with knowledgeable professionals who are independent advisors.

Consumers looking for local long-term care insurance agents or cost comparisons should visit the Association’s website at www.aaltci.org or can call the organization’s national headquarters at 818-597-3227.

Tags: 1035 exchanges, planning, universal life insurance

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