A Modern Life Insurance Hack
Long-term care (LTC) expenses are a significant concern for retirees and their families. The costs associated with assisted living facilities can be substantial, potentially depleting an individual’s estate. Traditional LTC insurance policies have been an option for many, but they come with high premiums and the possibility that benefits may never be used. An alternative approach is utilizing life insurance policies with living benefits, which can provide financial security while ensuring funds are available for long-term care needs.
Personal Experience with Long-Term Care Insurance
In 2002, after leaving Zions Investments to start my own advisory business, my wife, Barbara, and I decided to purchase long-term care insurance policies. We evaluated several options and settled on a high-quality 20-year pay policy. Our combined premiums were approximately $1,000 per month, equating to:
- $12,000 per year
- $240,000 total investment over 20 years
Recently, the insurance company offered to buy back our policies—$240,000 for Barbara and $190,000 for mine, totaling $420,000. After a brief discussion, we decided to keep our policies, even though I jokingly lamented the loss of my dream Porsche 911 GT.
A Lesson from My Mother’s Experience
Around the same time, my mother was in her mid-80s, and we considered long-term care insurance for her. However, at age 65, the premiums had seemed too expensive, and by her 80s, they had only increased. Ultimately, we opted not to purchase a policy. In her early 90s, she chose to move into an assisted living facility, where the cost was approximately $5,000 per month. She lived there for about four years, resulting in total expenses of $240,000. While these costs did not exhaust her estate, they significantly reduced it.
Determining Life Insurance Coverage for Long-Term Care
Given the high costs of assisted living, I wondered whether a life insurance policy with living benefits could effectively cover these expenses. Here’s what I found:
- Average Cost of Assisted Living:
- National median cost: ~$5,000 per month
- Annual cost: ~$60,000
- Average stay: 3-5 years
- Total estimated cost: $180,000 – $300,000
- Living Benefit Payout from Life Insurance:
- Many Indexed Universal Life (IUL) policies allow policyholders to access 1-4% of the face amount per month for long-term care needs.
- Example: A $500,000 policy with a 2% living benefit rider provides $10,000 per month (2% of $500,000).
Why Life Insurance Riders Are a Better Solution
Unlike traditional long-term care policies, which require a significant premium investment without a guarantee of use, life insurance with living benefits offers:
- Dual-purpose financial security: Provides death benefits for heirs if LTC benefits are not used.
- No “use it or lose it” risk: Funds remain available for beneficiaries if not needed for LTC.
- Flexibility: LTC needs can be met through policy acceleration rather than relying on separate LTC insurance.
Conclusion
By securing a life insurance policy in our current environment with a $500,000 face amount—one for yourself and one for your spouse—you ensure that your LTC expenses will be covered if needed. This strategy provides peace of mind, knowing that our assets are protected and available for either our care or our heirs.
For individuals concerned about long-term care costs, life insurance riders offering living benefits present a powerful, flexible, and cost-effective solution. If you are exploring ways to secure your financial future while ensuring coverage for potential LTC needs, this approach is worth serious consideration.
Next Steps
Interested? Visit Oaktree Premium Finance to learn more tax-free wealth strategies that can enhance your financial future.
About The Author
Jim Barlow, founder of OakTree Premium Finance, specializes in advanced financial strategies for high-income individuals and business owners. Known as “The Alchemist,” Jim helps clients maximize wealth, reduce tax burdens, and protect their financial future. Email Jim at [email protected]