Protection Products

Why Self-Fund if You Don’t Have To?


Protection

The best planning for long-term care is to amass long-term wealth, correct? Not really. If your clients are considering self-funding, you need to walk them through the numbers.

Take, for example, a 65-year-old married female in Texas. By repositioning $100,000 of her assets today, she can create a total pool of $507,819 in 20 years to spend on qualified long-term care expenses. P.S. Those benefits are tax free.  

To me, this is a no-brainer!

Why would a client choose to use their own money when they could leverage it with insurance? Why pay full price when you can pay the discount amount? Do you self-insure your car? No, because why pay 100 percent of the costs if you don’t have to?!

Let’s not forget: Self-funding means leaving not much, if anything, to the loved ones left behind.

For a more in-depth conversation around leveraging your assets to fund LTC – Just Ask. Use my calendar link to schedule a time that’s convenient for us to talk.

Why Spouses May Want to Consider Joint LTC


Protection

Spouses share a lot of things – house, cars, kids, bank accounts. Why not long-term care insurance? Yes, spouses can choose a long-term care policy with SHARED coverage, giving them a pool of benefits they can split.

One of the unknowns with long-term care is predicting how long you will need benefits. While the average need for care is about three years, your clients could die before needing care. Or just the opposite, they could have a long-lasting condition, such as Alzheimer’s, and need care for much longer.

Sharing benefits is a great way to hedge bets when deciding on a benefit period. It may make a couple more comfortable with purchasing a shorter duration and can save them quite a bit of money.

On the other hand, a lifetime benefit pool covers both short and long-term risks and ensures both spouses are covered no matter the timeframe of coverage needed. Of course, this is a bit pricier. Your clients will have to consider the risks they’re willing to take – together.

For more information on sharing benefits, JUST ASK. Use my calendar link to schedule a time that’s convenient for us to talk.

Linked Benefit Explained in 1-2-3


Protection

Most advisor aren’t experts in long-term care. So it’s understandable if you struggle to explain the concept of linked benefit, let alone convince someone to purchase it. Especially when you’d rather be doing something else. Anything else!

But because long-term care can be so challenging, that’s exactly the reason it’s crucial to take the time to explain all options available. That may mean taking the time to educate yourself first.

Since linked benefit plans combine both life insurance or annuities with long-term care, you might think they’re complicated. However, that is not the case. 

Essentially, a linked-benefit policy has three components:

  1. LIVE - An income-tax-free benefit pays for long-term care expenses, which could include home care, adult day care, assisted living and/or skilled nursing care. The policy is issued with a monthly benefit that is paid for a specific number of years, based on the policy design and riders purchased. Some policies offer benefits that can last for up to seven years.
  2. DIE - The life insurance pays an income-tax-free death benefit. The death benefit is reduced by any loans, withdrawals and/or benefits the insurer has already paid. Many policies also offer a residual death benefit, usually 10-20 percent of the initial amount of insurance, if the entire benefit has been consumed by long-term care expenses.
  3. QUIT – The policy’s cash value earns a set rate of return. Once all the planned premiums have been paid, the policy can be surrendered for the actual cash value, which is often 80-100 percent of the premium paid. Policy surrenders are subject to any vesting schedule and adjusted for any claims, loans or cash withdrawals.

It's an easy conversation to have if you’re a long-term care marketer like me, but not so much if this is not your everyday focus. Avoiding the conversation doesn’t have to be your default plan. If you have questions, JUST ASK! Use my calendar link to schedule a time that’s convenient for us to talk.

3 Reasons to Love Indemnity Policies


Protection

Indemnity or reimbursement – that is the question. For long-term care policies, traditional reimbursement policies pay benefits based upon the actual expenses you incur. An indemnity policy, however, pays you a monthly CASH benefit, regardless of expenses incurred.

As you may have guessed by the title, there are three reasons why I love indemnity policies.

  1. You don’t have to keep track of receipts. Now, I don’t know about you, but I can barely keep track of my tax papers, let alone every medical bill or receipt I would be required to keep track of for long-term care.
  1. You don’t have to use a qualified provider. Aunt Susie can come over and help! I would much rather it be Aunt Susie seeing all my business than some guy who looks like my mailman. No thank you!
  1. Money, Money, Money, Moneyyy! What better way is there to dip into the carrier’s pocket faster? Cash can be used for care, travel expenses, prescriptions, medical equipment, meals – whatever you want!

Case Study

  • 65-year-old female, married
  • $5,000 monthly benefit, 6-year duration, no inflation
  • She goes on claim but only needs $2,000 a month for care; after two years, she passes away
  • With a reimbursement policy, her spouse would be reimbursed her care costs: $48,000
  • With an indemnity policy
    • If she received the same care as above, her spouse would pocket $72,000 cash after her bills are paid
    • Keep in mind she can receive care from Aunt Susie; because she is family, she doesn’t charge as much. The spouse could net $120,000.

I know every situation is different, but so many people see the big number on the paper and think a reimbursement is the way to go. Just make sure you have all the facts. If you don’t – Just Ask! Use my calendar link to schedule a time that’s convenient for us to talk.

 

Tax Reform: 10 Options for That Life Insurance Policy You THINK You Don’t Need


Protection

In our line of work, there’s a question that comes up from time to time. And, it’s being asked more frequently: What should I do with this life insurance policy?

 

With recent estate tax reform, married couples can now shelter more than $22 million from estate taxes at death. So families with a net worth less than $22 million find themselves wondering what they should do. They have life insurance to pay for estate taxes that no longer exist. 

 

These families and their advisors should proceed with caution, thoughtfulness, and all the relevant facts as this is often a long-term and highly consequential decision. Here are 10 options to consider.

 

1. Do nothing. The current estate tax law “sunsets” at the end of 2025. Should the political climate shift – as it seems to do frequently – future legislators could create a more draconian estate tax regime. Our mantra has always been, “It doesn’t matter what the estate tax is today – it matters what it is when you are no longer here.”

 

2. Repurpose the coverage. Even if a family won’t need their life insurance for estate taxes, they may have other considerations – estate equalization for illiquid assets, for example, or the desire to provide a meaningful legacy to children, grandchildren or a favorite charity.  

 

3. Surrender or exchange the policy. Proceed with caution as cost basis planning can be incredibly important and impactful! If you surrender a policy with a significant amount of tax-deferred gain, that gain will likely be heavily taxed. On the flip side, if you surrender a policy with cost basis that exceeds the current cash value, you lose that basis forever. Consider a 1035 exchange for a new insurance or annuity policy and allow the cash value grow tax free until it’s at least back to basis. We recently pointed out this option to a wealthy family. They were able to preserve nearly $2 million in cost basis on the purchase of a sizable, no-lapse guarantee contract that had zero cash value. (Call us for case studies of how this works). 

 

4. Consider a life settlement. Believe it or not, there is a secondary market that acquires life insurance contracts. It’s possible to sell your policy to a third party for a value in excess of the current cash surrender value. However, consider this: If a policy is attractive for investors, it might be pretty attractive to keep!

 

5. Change funding to maximize return. Do a thorough Internal Rate of Return (IRR) analysis on your coverage to find the optimal funding pattern. One of the most common mistakes we see is policies that are funded to age 120, when a mortality study might suggest 90 or 95 would be sufficient. Through our efforts, we have been able to produce rates of return that are 50 to 200 basis points better by simply managing the policy’s funding schedule.

 

6. Consider an asset swap. Provisions of an Irrevocable Life Insurance Trust (ILIT) often provide the ability to substitute an asset of equal value for your life insurance policy. This may be a good way to repurpose the policy (see number 2 above).

 

7. Take a “wait-and-see” approach. See if you are able to stop, lower or modify the premium payment pattern to keep options open for future changes. Again, the tax law is temporary. And don’t forget: Your clients likely aren’t getting healthier. You may want to keep their insurability locked in. 

 

8. “Pay up” the policy. Consider reducing the face amount to yield a lower premium, or even no premium. Many policies can be adjusted to a “reduced paid-up” status, or new coverage can provide a guaranteed death benefit with no additional premium outlay.

 

9. Talk to the beneficiaries. Your client’s children may consider funding the coverage for its future investment return. 

 

10. Plan for other needs. Simply because your clients don’t need coverage at death doesn’t mean that insurance isn’t a good solution. Many new policies offer living benefits for extended care or even retirement income. And, the return on these policies is hard to match! Check out our December webinar replay  for details on how this works. 

 

Here is an even better suggestion: Call us. We will help you navigate the new tax laws and make it easy for you and your clients to make an informed decision. Whatever the question, whatever the need. Ash Answers. 

Policy Review - 10 Ideas For Existing Life Insurance

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Life Insurance Estate Planning Tax Reform Living Benefits