What’s Better: Traditional LTC, Asset Based LTC, or Permanent Life Insurance? with David McKnight

the power of zero

The best way to pay for long term care protection is by way of a permanent life insurance policy. If you die peacefully in your sleep 30 years from now someone is still getting a death benefit.

You are better off dying than requiring long term care, at least if you die your spouse becomes the beneficiary on all of your retirement accounts. Long term care insurance can prevent your spouse from enduring a bare-bones subsistence living in retirement if you end up needing to pay for long term care. 70% of people will need long term care insurance in retirement.

There are four ways to insure the need for long term care. The first is a Traditional Long Term Care policy but they are falling out favor because the prices are not guaranteed on these programs. Actuaries have been mostly unable to predict how much money to set aside. They are one of the least expensive options overall but the insurance company can increase the price at their leisure.

The big number on Traditional Long Term Care is 0. If you pay into the policy and die without ever having used it, your spouse gets nothing back at the end. There is no death benefit.

The second option is known as Hybrid Life Insurance or Asset Based Insurance. It’s more expensive than the Traditional LTC option but it comes with a slightly superior payout for long term care and the death benefit at the end is little more than a refund of the money paid into the policy.

The third option is Permanent Life Insurance. The biggest benefit of this option is that the death benefit is passed on to your heirs tax-free. 

David relates the story of a life insurance agent that was working with a farmer client who wasn’t sure what approach to take. He gave the client a copy of the Volatility Shield and that convinced the client to opt for the Permanent Life Insurance policy. 

The fourth option is a Deferred Income Annuity, many of which come with long term care options. It requires a lot more money up front but it accomplishes both long term care coverage and a decent death benefit for your beneficiaries. 

When you compare all the options, Permanent Life Insurance really stands out due to the considerably larger payout upon death. You also don’t have to liquidate your assets right away in the year that you die to pay for expenses if the market is down. The Permanent Life Insurance can be used to pay for expenses because it isn’t affected by the decline in the market and it can serve as a Volatility Shield of sorts. 

This is why the LIRP can be a great strategy. You get the long term care coverage as well as the death benefit to pass on to the next generation if it turns out you don’t need it.

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