Under what circumstances should a single person want to own an LIRP? There are a number of scenarios where it can make sense, but it definitely depends on the individual’s situation.
We have to remember the primary motivation for having life insurance is having death benefit, but there are a few close second reasons. Using the death benefit in advance of your death to pay for long-term care is one such reason.
With sufficient long-term care insurance, you are able to call the shots and have the long-term care performed in your home, which studies have shown also leads to longer life expectancies.
Without long-term care as a single person, you will end up spending down all your other assets in order to pay for it until you basically run out of money and end up qualifying for Medicaid, which is not something you really want to qualify for.
Medicaid facilities are typically of the government’s choosing and there is often a wide disparity in the quality of care you will receive when compared to a facility paid for by your LIRP.
Should you find yourself unable to do two of six activities of daily living, the LIRP will allow you to take 25% of your death benefit in advance of your death for the purpose of paying for long term care.
More and more people over the age of 50 are getting LIRPs mainly because they want to be able to call their own shots when it comes to long-term care instead of being forced into a Medicaid-funded facility.
The second big reason has to do with your IRA. If you want to control how your beneficiaries spend your IRA money, you can’t really do it due to the new retirement laws introduced earlier this year.
The third reason is you want your money to grow safely and productively. Some LIRPs have a growth account that is linked to the upward growth of a stock market index. If the index were to go out in any given year, your account is credited a zero. Historically, this will net you 5% to 6% after fees.
This allows you to use the LIRP as a functional replacement for the bond portion of your portfolio.
If you have too much money in your taxable bucket, it may not seem like a big deal until you crunch the numbers on all the inefficiencies and find it can cost you hundreds of thousands of dollars.
Many of these benefits of the LIRP are very useful to a single person, but the most important is being able to access your death benefit in order to fund long-term care. Visit the Medicaid-funded facility in your area and see what you think about it and then consider how an LIRP can allow you to ride out a long-term care event in your own home.
A lack of income limitations are another important factor in the LIRP that essentially allows a single person with an income greater than what they can put into an IRA access to an unlimited bucket of tax-free dollars.
The tax freight train is accelerating due to the Covid-19 stimulus package so be prepared.