Should I Use Life Insurance For Long-Term Care? with David McKnight

the power of zero

David believes that life insurance in most cases is the best way to handle long- term care needs in retirement.

Why do financial gurus say that you need long-term care insurance? 70% of us will need long-term care in our lives.

Nobody wants to save money their whole life only to give it to a long-term care facility two years before they die. Typically a long-term care event lasts an average of 2.3 years and most people do not survive them.

The idea behind long-term care insurance is to avoid blowing through all the money you saved up at the end of your life, but it’s also about protecting your spouse.

You’re usually better off dying than experiencing a long-term care event. If you die, the life of your spouse from a financial perspective would go on relatively unchanged. But if you survive, all of your assets except for a small amount gets earmarked to the long-term care facility.

If you have assets, the federal government isn’t going to pick up the tab unless you’ve really spent down your savings.

There is a massive difference in care in a Medicaid funded facility versus a privately funded long-term care facility. Studies show that you will probably die much sooner in a government funded facility.

According to the Wall Street Journal, fewer and fewer people are using traditional long-term care insurance. This is due to a number of reasons including it’s expensive and there’s no guarantee it won’t go higher.

Traditional long-term care insurance is underwritten by morbidity criteria instead of mortality, which means you could have a condition that in no way affects the odds of you dying, but you may still be denied coverage.

The biggest source of heartburn for people when it comes to traditional long-term care insurance is it’s a use-it-or-lose-it proposition. Nobody wants to pay for something for 30 years and not get what they paid for.

Instead of long-term care insurance people are switching to a form of life insurance that has a long-term rider or a chronic illness rider.

A life insurance policy can be thought of as a bucket of money that grows in a variety of ways. Money drips out of that bucket through a spigot that goes to pay for annually renewable term insurance. When you have a long-term care rider, you are basically paying more expenses along the way for the privilege of using your death benefit to cover your long-term care expenses. [

You are paying for something that you hope you never have to use. If you die peacefully in your sleep, you don’t get that money back, and that can be hard for some people to accept. [

The chronic illness rider gives you the same benefit of using your death benefit to pay for long-term care, but you don’t pay anything along the way. The difference is that the insurance company discounts your death benefit depending on your age when you access it. [

Other benefits of life insurance retirement plans are being able to touch the cash in the bucket prior to age 59½ with no penalty, not receiving 1099’s as your money grows, and if you take the money out in the right way, you can get it out tax-free. [

There are no contribution limits on how much you can put into the policy and there is no income limitations. [

Life insurance retirement plans may be immune from legislative risk. Any changes they have made in the past existing plans have been grandfathered in. [

Clients between 50 and 65 are looking towards the LIRP to cover their long-term care. If you are between 50 and 65 you are probably dealing with at least one person going through a long-term care event. [

People are asking themselves, “How do I avoid the financial carnage of a long-term care event?” [

There are two ways to approach the life insurance plan, you can pay upfront with a long-term care rider or discount the benefit at the end with a chronic illness rider. [

The Power of Zero movie will be released April 21, 2019.

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